§ Order for Second Reading read.
§ 3.54 p.m.
§ The Financial Secretary to the Treasury (Lieut.-Colonel Colville)
I beg to move, "That the Bill be now read a Second."
If I move this Motion shortly, it is not indeed because the subject is unimportant, but because the ground was very fully covered in the Debate which took place on Monday on the Committee stage of the Financial Resolution. It was evident then that on all sides there was an acceptance of the necessity for strengthening the resources of the Exchange Equalisation Account. It is quite true that the Opposition moved an Amendment to reduce the amount to £150,000,000 instead of £200,000,000, but the right hon. Gentleman who moved the reduction was careful to explain that it was not because he disagreed with the general policy, but rather that he wished 1976 that it should be kept under review. The Amendment was voted down, and the proposal of the Government that the increase should be £200,000,000 was accepted.
The House will also recollect that on the important subject of information my right hon. Friend the Chancellor of the Exchequer was able substantially to meet the desires of the Committee both in the matter of the publication of information at half-yearly periods and in the assurance which he gave that the Public Accounts Committee, that trusty watchdog of Parliament's financial affairs, would be able, not only to see statements relating to the Account, but to question Treasury witnesses on the Account. These assurances in the matter of information were accepted by the whole Committee as being generally satisfactory. There were one or two observations on the subject, but there was little doubt of the sense of the Committee generally on that matter.
For the Exchange Equalisation Account, I claim that in the past two years it has contributed in no small degree to the industrial recovery which has taken place in this county by helping to preserve our exchange from disconcerting fluctuations; for there is little doubt that had there not been some measure of control through the Exchange Equalisation Account, there would have been fluctuations that would have been damaging both to our home and to our export trade. Since the Resolution on which this Bill is founded was taken, only two days ago, the French Government have introduced into their Parliament proposals for full powers to deal with the financial situation of their country. The Chancellor of the Exchequer made a statement on this subject just now, and naturally there is nothing which I can usefully add to it. The House will see, however—and I think there will be very general agreement with this—that my right hon. Friend was very well justified in his statement on Monday that we are passing through difficult and disturbing times, and that there was a real and substantial occasion for fortifying our resources for dealing with the exchange situation.
§ Sir William Davison
Is it a fact, as stated in the Press, that the French exchange equalisation fund has all been spent?
§ Lieut.-Colonel Colville
I have nothing to add to the statement which my right hon. Friend made. No doubt, if my hon. Friend wishes, he may put that point in debate, but I cannot, of course, add to what my right hon. Friend said on the subject a few moments ago. In any case, what we are discussing now is our own Exchange Equalisation Account. The right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) used rather a striking phrase in his speech on Monday on the Financial Resolution, when, referring to the holder of foreign securities, he said:It is rather remarkable to note … that he actually prefers sterling securities to the possession of gold itself, and it is a very great tribute to this country that that should be so."—[OFFICIAL REPORT, 28th June, 1937; col. 1668, Vol. 325.]That is a view which we can certainly echo, and it is satisfactory that there is a degree of stability and confidence in this country which inspires that feeling abroad, and yet that very feeling sometimes has consequences which are embarrassing to us. It is, therefore, very necessary that we should take this step at this time. The Bill itself is one of two Clauses. It simply gives effect to the decision of the House that the aggregate amount which may be issued to the Exchange Equalisation Account from the Consolidated Fund shall be increased to £550,000,000.
§ 4.0 p.m.
§ Mr. Dalton
My hon. Friends are not going to oppose the Second Reading. I need only say that by way of preliminary in view of the statement made here the other day. None the less this is perhaps a suitable moment, as the Financial Secretary himself has suggested, to make some general observations on the position in which we find ourselves. There are one or two matters which are frequently commented upon in the Press, but which have not been referred to specifically by the Financial Secretary nor by the Chancellor of the Exchequer in his speech the other day. The Chancellor of the Exchequer is perhaps going to say something later, and perhaps he will be able to light up one or two points which have been left in obscurity. The principal purpose of this Measure, we understand, is to take further means to strengthen financial co-operation between this country and the United States and France, and my hon. Friends are wholly 1978 in favour of the principle of such cooperative working between the three greatest democracies left in the world at the present time, and indeed, as my right hon. Friend the Member for Keighley (Mr. Lees-Smith) said the other day, we hope that this is not the limit of financial and economic co-operation between these three nations, but that the Government are prepared to go a good deal further by way, for example, of financial and trade arrangements with the United States of America.
A point which has not hitherto been mentioned and on which the Chancellor of the Exchequer might throw some light is how far the United States Government have joined with the French Government in desiring or in welcoming from us this step; in other words, how far this Bill is due to American as distinct from French suggestion. I suspect that in some degree it is due to American suggestion. There have been rumours which have apparently played havoc with the nerves of the hysterical inhabitants of the City of London as to an impending change in the gold value of the dollar, and in spite of persistent denials of any such intended change there have been spasmodic movements on the foreign exchanges and also in the security markets. It would be interesting if we could know whether this Bill is part of a programme of Anglo-American co-operation which has for one of its objects the prevention of any present variation in the gold value of the dollar.
Passing to France there is, I think, a certain resemblance between the situation in France to-day and the situation in this country in 1931—a resemblance in this particular respect. In France to-day, as in this country in 193r, unpatriotic and wealthy citizens are depreciating, and speculating in, their country's money, and just as in 1931 one of the difficulties against which we had to contend was that so many wealthy people were crying stinking fish about our own country's financial situation and had been moving their own private property and their liquid funds into foreign currencies, so France is suffering to-day from the same combination of a highly concentrated degree of wealth in a few hands, of a lack of patriotism among wealthy people and of their political animosity against the Government of the day. I am very glad indeed that the Government of the day in France, 1979 with the mandate of an overwhelming popular vote obtained not long ago, is boldly facing this situation and that it will be assisted by the Bill which is now before the House. If on no other grounds, my hon. Friends would be favourable to this Bill in that it will help to hold up the arms of French democracy against other political forces in France.
I would make this further observation: Although there is a certain similarity between the French situation and ours in 1931, the French to-day are better placed than the British Government was in 1931 for dealing with this situation. In the first place they are not tied to a fixed gold parity as we were. They have very wisely retained power to vary the gold content of the franc, to vary the relationship between the franc and gold, and that gives them a certain freedom of manoeuvre which we sorely lacked until the National Government fell off gold in the latter part of 1937. In the second place, our French friends have this advantage at the moment compared with our situation in 1931: there is a very close and organic relationship to-day between the French Government and the Bank of France owing to the fact that the present Government in France have taken steps to make the Bank of France a public institution, to nominate governor, and to secure the close and harmonious working of the bank in a subordinate capacity to the Government.
§ Mr. Boothby
Does the hon. Member suggest that there was not an organic unity between the late Lord Snowden and the Governor of the Bank in 1931?
§ Mr. Dalton
That was a case of personal domination rather than constitutional relationship. I shall come to that personal aspect in a moment. But the French Government is relatively well situated in the two respects I have mentioned, freedom of manoeuvre in regard to the relationship of gold to the franc and effective control over the operations of the central Bank with the governor as the Government's nominee. Having said that I think we must admit that, given the existing situation in France, the decision of the French Government to let the franc fall is wise, to let it fall within certain limits, which will no doubt in part be determined by the operation of this Exchange Equalisation fund. I 1980 can conceive that the purpose of the financial operations which are likely to ensue under this Bill is to hold up the franc, not at an artificial level, but to prevent it being driven unduly low by unpatriotic or profit-seeking speculators, to permit the franc to fall to its natural level in relation to the current balance of trade and of payments, but not to permit it to fall below that. I conceive that to be the purpose of the financial operations which are to follow, to which this Exchange Equalisation fund will contribute. Of such a purpose we can warmly approve.
As I understand the matter, and as it has been expounded from time to time by spokesmen from the other side, the purpose of the Exchange Equalisation Account is not to prevent all movements of the exchanges, but to prevent unsteady and speculative movements of the exchanges. Herein we have advanced a long distance since 1931, when it was deemed necessary to prevent all movements of the exchanges except within the very narrow limits of the gold points under the old Gold Standard. It is now recognised pretty generally that a certain freedom of movement of the exchanges is most desirable at times of instability of trade such as that through which we are now passing. In so far as the purpose of the Exchange Equalisation Account is not to clamp the exchanges, neither the franc nor the sterling exchange in terms either of gold or of other currencies—not to clamp them by some legally authorised parity but to allow them to move freely and steadily in accordance with the movements of the balance of payments and the currents of trade—so far as that is the purpose, I think it has the support of an overwhelming majority of instructed opinion in all sections to-day.
But I would like to emphasise this point. My hon. Friends here would give no support to this Bill at all if it contained provision for any clamping of sterling to gold, or if indeed we thought that that was one of the purposes behind it. The Chancellor of the Exchequer has stated that that is not so. Perhaps he can give us yet one more reassuring statement on the matter. He gave the other day an answer to a question that was indeed reassuring upon the point, but we should be glad to have the matter clearly stated again—that there is no purpose 1981 here except to prevent unsteady movements, not to prevent steady and natural movements, in the relationship between gold and any of the principal currencies or between the principal currencies themselves.
I have to add only three further reflections. First of all, if you are going to have an Exchange Equalisation fund at all, it is eminently desirable that it should be strong enough to do its work. It appears to me that a condition of the fund being strong enough to do its work is that it should never degenerate into a position in which all its assets are of one sort. I understand now that our fund, unreinforced, is practically all gold. As to the French exchange equalisation fund, the hon. Member for South Kensington (Sir W. Davison) said just now that it had all been spent. I think that was an inaccurate term of speech. Perhaps he meant that the assets are now all francs so that no further purchasing operation, of francs with gold or other foreign exchange, is possible. On the other hand, our fund has become practically all gold, or that is what we are told. If that is not so, perhaps the Chancellor of the Exchequer will say so later. I am merely on the general proposition, which I think will be generally accepted, that the condition of the effectiveness of an exchange equalisation fund is that it should be able to maintain a certain variety in its assets. Whatever operations of purchase or sale may be required in order to perform its function, a necessary condition is that its assets shall be, as it were, a mixed bag. The test of whether a fund is large enough in any circumstances is how far it has succeeded in maintaining this mixed character among its assets.
Passing to two final points, I would recall that my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) made a very interesting reference the other day to the relative roles of the Treasury and the Bank of England. It appears—here I go back to the point of personal relationships raised by the hon. Member for East Aberdeen (Mr. Boothby) that since 1931 the Bank of England has lost influence and the Treasury has gained it. In so far as that is true, whatever view one may have of Treasury officials—they are a very able body of men though sometimes their purposes may be less wide than those of some of the rest of us—I think there will 1982 be agreement on this side of the House that any increase in the influence of the Treasury relatively to the privately-owned Bank of England, and still more relatively to the Bank of England under its present Governor, is all to the good. On many occasions he has given bad advice and the Treasury has given good advice. We feel happy that Mr. Norman's influence on our policy has diminished, and particularly so when political considerations, not strictly of a monetary character enter into the question. If we are seeking whole-hearted co-operation with France, then, in view of certain past events, we are all the more relieved that it is the Treasury rather than the present Governor of the Bank of England who is the most important source of advice on these matters. Mr. Norman in the past has given the impression of loving France less than some other European elements, and we therefore welcome the increase in the influence of the Treasury.
With regard to the future monetary policy of this country and of the civilised world, my right hon. Friend the Member for East Edinburgh the other day urged the Government to think deeply as to their future intentions in monetary policy. What do they intend to do about this continued output of unwanted gold? It is, indeed, a ridiculous situation in which, particularly in South Africa and Soviet Russia, great quantities of this metal are dug out of the earth, are then shipped about the world at great expense, and sometimes shipped backwards and forwards at great expense at short intervals, and finally buried in bank vaults and other safe places. It is intrinsically a ridiculous system, and many of us have contended that we should seek more and more to establish stable internal values of national currencies, and relatively stable international exchange rates, and in this process should by-pass gold altogether. It is easier said than done, but I hope we shall not think that by passing this Bill we have come to a permanent solution because we have not. A permanent solution, even a solution that would endure for a short term of years, must depend upon some further effective co-operation between various nations regarding monetary policy. The Tripartite Agreement between this country, France and America is admirable on its merits, and admirable by reason of the partners in it. In addition, the sterling 1983 group still lives, and I hope will continue to live.
It is evidently more desirable that we should get the fullest co-operation on monetary and trade questions with those nations which have linked their exchange with sterling, many of them what I may call politically desirable nations—democratic nations such as the Scandinavian nations, among others. If to the strength of the present: membership of the sterling group, which includes all our own Dominions and various European and South American countries, we can add France and the United States—although I do not think they will actually enter the sterling group—and those countries which naturally follow France and the United States, we shall have got very near to a full world conference on these matters. I hope that the Government will pursue consultation in an effective fashion with other nations, including particularly the two which are in our minds to-day, and that they will he able to hammer out some constructive international monetary policy which will not leave us at the mercy of the vagaries of gold discoveries or of unpatriotic speculators or financial panics in future years.
§ 4.20 p.m.
Mr. Owen Evans
The Chancellor of the Exchequer indicated the other day two reasons why he wanted to increase this fund. One object was to check undue fluctuations in the rates of exchange. The House will realise how important that is, for those of us who are simple-minded people and not financiers in the City, have to deal daily with commercial transactions involving the export of goods to other countries. It is most important that we should have as far as possible stable rates of exchange between nations. There can be no doubt that this has been achieved largely by the action of the Government in setting up this Equalisation Account. We have seen only in the last few days how difficult it is for traders and exporters in this country to deal with their contracts and sales in view of the unsettlement across the Channel. I do not entirely agree with what the hon. Gentleman the Member for Bishop Auckland (Mr. Dalton) has said with regard to the position in France. Those of us who have to do business with France and visit it now and again know perfectly well that the position might not 1984 unfairly be said to be that the Government of France promised a great deal at their general election which they have attempted to carry out too readily, and without regard to the needs of adjusting conditions in the country to the new legislation. I venture to say, without quarrelling with the policy of the Government in France, that whatever policy of a Socialist kind that is adopted must be done gradually and with some regard to the economic position. That has something to do with the present financial position of the French Government.
There is another point which the Chancellor has made with regard to this fund and its increase now. In this respect I entirely agree with my hon. Friend the Member for Bishop Auckland as to the importance of the Tripartite Agreement. The House should remember some of the provisions of that agreement, and particularly the objective of it as stated by the three Governments at the time it was made. There are two features of it which will enable us to judge how far this fund can achieve the purpose of the agreement. The combined statement of the Governments was that they desired to foster those conditions which would safeguard peace. That is in the forefront of the statement, for there is nothing so detrimental to the peace of the world as conditions which prevent good trading between nations. Therefore, any means by which easy exchange of money and currency can be obtained is bound to contribute to peace. Furthermore, these three great democracies joined together, as they said in their statement, to promote general prosperity, not only in the three countries, but outside, and to improve their standard of living.
How are they going to do it? They are going to do it, according to their own statement, by using all the available resources of the three countries so as to avoid any disturbance in international exchange. I again agree with my hon. Friend that in order to set aside all our available resources it means that this fund must be strong, and strong in proportion to the available resources of each of the countries which have subscribed to the agreement. For that reason I consider that the Government are justified in putting these proposals before the House, because they know what the available resources of the country are, and what part of the resources are needed to give effect 1985 to this Tri-partite Agreement. I would also like to emphasise the need of consultation between the three countries. That, again, is laid down clearly, and I hope that the Chancellor will be able to give some information to the House as to what steps have been taken to consult the other two countries about these proposals. How often do these consultations occur, and what has been the result of them so far?
There is one other point which must not be overlooked. The stabilisation of the exchanges is not done for that aim alone; the only object of stabilising the exchanges is to increase trade between countries, and I ask the right hon. Gentleman to assure the House that that ultimate object of the Tri-partite Agreement will be kept in being, and that it will be linked, as it was when it was established, with the development of international trade. In a statement issued by His Majesty's Government at that time they said that they attached the greatest importance to action being taken without delay to relax progressively the present system of quotas and exchange controls with a view to their abolition. I ask the Chancellor to give an assurance that, when he asks for this large sum of money to be applied to the use of this fund, that ultimate object is always to be borne in view by the Government, because the object that we all have is to increase trade between the nations, and thus to establish better conditions for the peace of the world.
§ 4.30 p.m.
§ Mr. Loftus
I listened to every speech in Monday's Debate, because I cannot imagine any question, apart from the question of peace and war, which is more vital to the interests of this country, to industry and to all engaged in industry, than the present and future monetary policy of the country; and, of course, this Exchange Equalisation Account is part of the lifeblood of our present monetary policy. During Monday's Debate I gathered four strong impressions. First, that there was a general welcome for the Government's proposal, qualified by the small reduction moved by the right hon. Member opposite, a welcome especially in view of the situation then developing in France. The second impression was that there was an undercurrent, a hint, of disquiet, about the large size of the fund and the large accumulation of gold. 1986 The third impression was an undercurrent of inquiry as to the future policy—to use an abominable modern term, the longterm policy—of the Government in monetary matters, and combined with that suggestion for information, there was a division of opinion in the House, not confined to one side. Some Members obviously hankered for a return to the orthodox Gold Standard—Members both on this side and Members opposite.
§ Mr. Dalton
Does the hon. Member suggest that any of my hon. Friends here were hankering for a return to the Gold Standard?
§ Mr. Loftus
I think I heard one Member speaking immediately behind the hon. Member definitely advocating a return to the Gold Standard.
§ Mr. Loftus
I did not expect to get any definite information as to the long-term policy, for the very good reason that I fancy the Treasury and the Government during the last six years have been acting in the matter of monetary policy entirely in a pragmatic manner, using the term in the very best sense of the word. I fancy that when they took over from the Bank of England, six or seven years ago, the task of managing the monetary policy it was rather a case, to use the old Latin tag, of solvitur ambulando. They have learned a great deal step by step through experience, but they are probably not in a position as yet to lay down hard and fast plans for the future. I think the fourth point which emerged from Monday's Debate was a general desire in all parts of the House that there should be co-operation to the utmost extent with the United Skates of America.
I turn to the size of the fund. Including the old Dollar Fund it is, or will be, £575,000,000. That was practically the size of the National Debt when I was young, and before my first war, the Boer War. The gold we hold is £700,000,000. I think our gold holding per head works out roughly the same as the holding per head of the population in the United States—at any rate the holding there per head is very little more than here. For that reason I rather regret that my hon. Friend the Member for East Aberdeen (Mr. Boothby), who I regret is not in 1987 his place, suggested that we should bring pressure to bear on the United States to utilise its gold to expand currency. I do not think that policy would be at all desirable, for two reasons. In the first place, if the United States used that mass of gold in the full orthodox manner to expand currency, it would have led to an enormous rise in prices, and that in turn would lead to the wrecking of its industries—the flooding of the country with imports and colossal unemployment, and no American Government, or any Government in any modern democratic country, would ever again work the orthodox Gold Standard so as to wreck its own industries, force down wages and cause great unemployment. I suggest that if we preach to the United States the way they should go, they may reply, "Physician, heal thyself," because we are also sinners—sensible sinners—as regards financial orthodoxy. We have not used our accumulations of gold according to the strict rule of the game in expanding our currency. We have deliberately refrained from doing so by three methods. In the first place, we have reduced the fiduciary issue by some £60,000,000. Secondly, we have taken gold as the basis of new issued currency not at 140s. per ounce, the price at which we bought it, but at 84s. 11½. Thirdly, we have sterilised some of the gold in the Exchange Equalisation Account. We have obviously not played the orthodox game, because, again, it would have raised the price level very rapidly and led to inflation.
We and the United States are both borrowing money and using that money to buy gold partly in order to sterilise it. We are increasing the National Debt—we on a small scale and the United States on a very big scale—to bury gold where it brings no income, and, of course, it is a question of how long that can go on. The question was raised by, I think, the hon. Member for Bishop Auckland (Mr. Dalton) as to whether the United States would reduce the price of gold or still worse, stop buying gold, and if they did he suggested that it might place us in a difficult position, because the price of gold is entirely, as it has been for 200 years, an artificial price, a pride fixed by law. If one had to buy tin at the central banks of the chief countries at £300 per ton—or at very minute variations on that price—tin would have re- 1988 mained almost at that particular price till the law released the banks from that obligation. There is no price of gold except that fixed by law, and therefore if the law breaks down nobody knows to what figure the price of gold would fall. Therefore, I feel that it is doubtful whether the United States will do anything to depreciate the value of gold, not only in view of her own large holding, but for this very important reason.
The hon. Member for South Croydon (Mr. H. G. Williams) pointed out on Monday, that these equalisation accounts are created by Treasury bills which go out into the world for paying for the gold and currency. These get dispersed partly to primary producers throughout the world and he said that this was a form of world inflation. I shook my head at the time, but I think he was right. I think that these colossal equalisation accounts, aggregating about £1,000,000,000, have had the effect of raising world prices, and I think we ought to realise that the policy of President Roosevelt is to raise world prices, as the policy of most nations is to raise world prices. Therefore, I do not think there is any chance of the United States doing anything to wreck the price of gold. One suggestion which I have seen in the Press is that the United States might tax what is called "bad money" or "hot money," and here, with a great deal of diffidence, I ask my right hon. Friend the Chancellor of the Exchequer whether there is not a possibility of our considering something on the same lines. After all, if fugitive capital comes to this country, if people are afraid of their own country and send capital here for safe keeping, some charge, however small, ought to be made for that safe keeping. I admit that there would be great difficulties, but I think that foreign money which comes here on deposit could be got at and taxed. The answer may be made "That would drive this refugee money into the purchase of Government securities." What if it did? That would be a good thing. It would help to keep up the value of Government securities. It would give stockbrokers increased incomes, which would be heavily taxed in the normal way and so the country would gain in both ways. I feel that is a suggestion which is worth considering, because it does appear monstrous that the taxpayers in the 1989 United States, France and here should be taxed to find vast sums of money, some of which—I do not say all—is required on account of this refugee money moving about from one centre to another.
§ Mr. Loftus
This accumulation of gold, £700,000,000, has, possibly, certain psychological reactions. I suggest, in the first place, that it gives the Government and the nation, all taxpayers, a kind of vested interest in maintaining the price of gold. My hon. Friend the Member for East Aberdeen said, and I agree with him to a certain extent, that if the price of gold were lowered it might have a psychological reaction throughout the world and lead to a fall in prices, which I agree would be a disaster to the world. Prices are not yet high enough. The second advantage is that having this mass of gold, I think we may be led, as the hon. Member for Cardigan (Mr. O. Evans) said, to attach an undue weight to the rigid fixing of foreign exchange. I thoroughly agree with the hon. Member for Bishop Auckland that that must be a secondary consideration. It is much better to have minor fluctuations of foreign exchange so long as we retain the control of our own internal price level, our own issue of money and so on.
After all, part of the reason for the bitter devaluation of 1925 and the following year, and in 1930 and 1931, was to keep sterling at the right level with the dollar and the franc in a desperate effort to save the external exchanges at the expense of wages, industry and employment. I feel that if it becomes a choice of maintaining the external rates of exchange, or the internal control of the price level, then the vote must go against the external exchange every time. I understand that Sweden has suggested that she cannot maintain parity with the pound if our price level rises or indeed does not fall, but I do not think we can sacrifice our price level to Sweden. Sweden has a satisfactory price level, as shown by the fact that she has practically no unemployment. We have still an unsatisfactory price level, as shown by our vast number of unemployed. Therefore, we must not sacrifice our pound or finally adjust our price level till we get the same satisfactory state of affairs as exists in Sweden to-day. A further psychological objection to our holding this vast mass 1990 of gold is that it might create a mentality hankering after a return to the old orthodox, rigid Gold Standard. That I would regard as a disaster in which every one in the country would suffer, apart from a very small minority.
It may be argued that the Gold Standard worked well in 1914; but did it? It broke down on every occasion when great pressure was applied to it, in 1847, 1857, 1866 and 1914. One reason why it worked, however badly but still worked, was that we were practically the only creditor country. Once other great nations became creditors, the whole thing broke down. In 1924–25 we raised our bank rate higher and higher, but we did not attract the gold, which still flowed into the United States. Even when the Gold Standard worked it did so only by periodic alternations between deation and inflation. The Cunliffe Committee in 1918 pointed out clearly the effect of raising the bank rate. As gold leaves a country the central bank has to raise its bank rate in order to protect its gold. In the actual words of the Cunliffe report, as far as I can remember them, the effect of a rise in the bank rate is, first a slowing down of all capital expenditure, second the forced sale of commodities on a weak market, third a general fall in the price level. We were warned in 1918 what would happen if we carried out that policy. I do not think that industry will ever submit again to the deflationary policy which caused so much misery in the post-War years.
I agree with the hon. Member for East Aberdeen that we still have not recovered. The price level is not yet high enough. I notice that in India the price level was 178 in 1918, 88 in 1933 and about 70 at the end of last year. The effect of a deflationary policy has been to halve the purchasing power of the people of India and to halve the income of the Indian peasants, and that effect caused disaster to the Lancashire cotton trade.
A general desire was expressed for co-operation with the United States, but we ought to know and realise what the policy of the United States is. From inquiries that many of us have been able to make it is obvious what the policy of President Roosevelt is. The first part of it was to raise the price level. Our own Macmillan Committee advocated raising the level to that of 1928 and the Ottawa Agreements also advocated raising the price level. In 1991 1933, the agreements signed by the Dominions and by the Prime Minister advocated raising the level to equilibrium with the Debt Structure and to give remunerative prices to the primary producer. On that point we can obviously co-operate to the full with tie policy of the United States. The second feature of the policy of the President was to get the price structureright. When the slump came, prices fell away, but prices of manufactured goods fell to 80, while prices of primary agricultural goods fell to 40. It was necessary to raise these to parity with manufactured prices, hence the policy generally condemned at the time of destruction of crops and ploughing up of land. That policy was successful, and the latest figures I have seen last week were that agricultural products were just over 80 and manufactured goods prices about 85. That is an essential part of any monetary policy, because the chief purchaser of the products of industry throughout the world is the primary producer, and you must get his prices right if the man in the street is to live and industry is to prosper.
The third point of President Roosevelt's policy is to stabilise, when a satisfactory price is reached, and to keep stabilised. It is to keep the general price level stable. Is there anything we can object to in that? It is part of our own policy. The declaration of the British Empire at Ottawa, and again in 1933, signed by all the Dominions, was that when the price level was raised to a proper level every effort should be made to stabilise it. I suggest that we have every reason to co-operate with the policy of President Roosevelt and with the United States Government because that policy is, in effect, that which was laid down at Ottawa and re-affirmed in London in 1933. I feel that if we could get agreement we could carry on, and that we might then work to stabilise our exchanges—but not on gold. We might advance gradually to some system of fixing the exchange rates and giving a monopoly of all bills of exchange to the central bank in each country, having an international clearing house and making international trade what it should be, a mutually advantageous exchange of goods and services, not complicated by the striving for power and for gold, by the striving of the debtor to pay his debts or of the creditor to increase his loans.
1992 In the last six years we have gone through a revolution in finance in this country, little realised by the mass of the people. Up to six years ago, as for 200 years past, the Bank of England controlled the amount and the volume of currency. It controlled also the purchasing level of currency and the rates of interest. After 1931, our Treasury, bit by bit, have taken over those powers. During recent years the Treasury has had control of the volume of our money, of the purchasing level of our money and of the rates of interest. I would regard it as a terrible disaster if the Treasury ever handed those powers back, and did not retain them for the public good.
The future is full of financial difficulties. In peace time we have reached almost the level of war taxation. We are practically at maximum taxation; and note that our social services must automatically increase as the years advance. Note also that we are heading for a stationary and then a declining population. How are we to bear this burden of taxation? There is only one way, by increased national production. If we can employ the resources of the nation to a maximum of 100 per cent., we can lighten the load of taxation; above all, if we can make our price level stable we can lighten year by year the weight of taxation. It is necessary that the Treasury should retain control of monetary policy and retain the power to regulate the amount of currency and the price level. I believe that we are at the beginning of a period when, if we move forward carefully but with the requisite determination, we can enormously improve the standard of life of our people by the careful management of the currency. I therefore support the proposal now before the House.
§ 4.56 p.m.
§ Mr. G. Strauss
I do not intend to follow the hon. Member for Lowestoft (Mr. Loftus) in his very full survey of the money situation as it is to-day and as it has been during the last 10 or 20 years except to comment that I think he is mistaken if he imagines that this country can attain a 100 per cent. capacity in its production by monetary manipulation alone.
§ Mr. Loftus
My point was that increased production has always been checked by lack of purchasing power and 1993 if we could get our price level stable that would automatically mean that there would be sufficient money to purchase the goods on the market.
§ Mr. Strauss
It would take me some time to go into that point. In my view, and I think in the view of many of my hon. Friends, that reading of the situation is almost wholly fallacious. It would be going far outside the limits of the Debate to argue the point. I agree that it is highly desirable that we should attain the maximum production in this country, but it would require a fundamental measure of change in our social system before that happy situation was obtained. I am confident that it cannot be done by any Treasury control under the present industrial system.
I expressed my views at considerable length when the Financial Resolution was before the Committee, and I do not intend to repeat them to-day. I rise merely to make one short point, which is to say that the situation, as explained by the Chancellor of the Exchequer the other day, in regard to the degree of publicity which is to be given to the Exchange Equalisation Account, is not satisfactory at the moment. I have read the Chancellor's statement very carefully, and the more I read it the more unclear it becomes in my mind. Possibly the Chancellor will be able to make some further explanation which will be more satisfactory. He started by saying that the annual account would be put before the Public Accounts Committee, and that was all right as far as it went. We imagined, or, at least, I did, that the Public Accounts Committee would have quite considerable detail and would know, when the Account came to be valued, which was to be on 31st January in respect of accounts made up as on 3rst March in the previous year, the position of the fund and whether it had made profit or losses in the period under review, and also what those profits and losses were.
The Chancellor went on to say that the account would givean indication as to whether at the date when the Account was taken the result was a profit or a loss."—[OFFICIAL REPORT, 28th June, 1937; col. 1663, Vol. 325.]That is very different. We have already been told in the Budget Speech whether there is a profit 1994 or a loss on the Account, and it is highly desirable that the Public Accounts Committee should know not only whether there was a profit or loss on the Account but what that profit or loss was. I fully appreciate that it is impossible for the Chancellor or anyone else to make a public statement as to how the Account is going from day to day, because that would defeat the whole purpose of the Account; but I maintain very strongly that, when this vast sum of public money is being used, I agree for a desirable purpose, but nevertheless is being used in what must be a highly speculative manner in attempting to curb undue fluctuations of the exchange, the public are entitled to know, after a reasonable period and when all danger is past of the information being used for some harmful or unsocial purpose, whether, on the £550,000,000 which has been handed to the Chancellor of the Exchequer, there has been a loss, and, if so, what that loss was; or, on the other hand, whether there has been a profit, and, if so, what that profit was.
According to the Chancellor's statement the other day, not even the Public Accounts Committee is to know what the profit has been, if there has been a profit, on the Exchange Equalisation fund, nine months after that fund has, so to speak, closed its books. It may be that the Chancellor did not explain himself on this matter as clearly as he usually does, and that the Public Accounts Committee will know what has happened in regard to the fund, but certainly, according to his statement as he made it, the Public Accounts Committee will not have that information before them at all. I believe that after nine months this House and the public should know exactly what has happened to the £550,000,000 which they have put under the charge of the Chancellor. I know of no reason, and no reason has yet been given, why the public should not know after the passage of a reasonable period of time. If the Chancellor says that nine months is too close, let us say 18 months, or two years; but I cannot see what public damage can follow if it is reported by the Chancellor to the House and to the public what, during a certain year's working, was the loss or profit on this money which the public have provided. I think the public are absolutely entitled to know that.
1995 It is public money, and, unless some strong reason can be put forward, which certainly has not yet been done, why the information should be kept permanently secret, I would strongly urge the Government to consider their duty of reporting this matter to the House of Commons and making it public once a year after an appropriate period has passed from the making up of the accounts. I shall await with interest what the Chancellor has to say on the points which I have raised, namely, how much information is really to be given to the Public Accounts Committee; whether they will know what profits or losses have been made during the period they will be reviewing; and why that figure—I am not asking for further details—should not be communicated at the proper time to the House of Commons.
§ 5.10 p.m.
§ Mr. Boothby
I make no apology for making a few further references to this subject, because I am sure hon. Members will agree with me when I say that, with the exception of foreign policy, this is by far the most important subject that the House of Commons can discuss at the present time. I took the opportunity of doing a thing which I suppose we all ought to do every day, but which, I must confess. I do not do every day—I read the Debate on the Financial Resolution verbatim, from the first word to the last; and what struck me was the enormous amount of common agreement between all the speakers on both sides of the House as to the policy to be pursued. If I may give the House the benefit of my reading, I would like to say that there is a consensus of agreement on both sides of the House on the following points.
In the first place, there is agreement that the present policy of the Chancellor of the Exchequer, in increasing the Exchange Equalisation Fund for the primary purpose of putting us in a position to buy gold or other assets as necessary, is the right policy. If I may add a word of my own, I would like to say that I think the opening statement of the Chancellor of the Exchequer in bringing this Financial Resolution before the House was the most comprehensive and lucid statement of monetary policy that we have had from any Minister of the Crown since the War.
1996 The second point on which there was a substantial measure of agreement, and about which the Chancellor of the Exchequer himself agreed, was that you cannot hope to alter fundamental longterm economic trends by exchange equalisation accounts, or any form of currency manipulation; and the third matter upon which there was a consensus of opinion was that neither a rigid de jure stabilisation nor a mere day-to-day accommodation of exchange rates is at present desirable. Something is wanted between the two—something between de jure stabilisation and the mere day-to-day ironing out of exchange fluctuations—which may perhaps best be described as conditional stabilisation. I think that that is a phrase which will appeal to hon. Members on both sides of the House.
Then there was a remarkable amount of agreement that this conditional stabilisation, within definite limits, should be subject to periodical revision in the light of existing conditions. It was felt by hon. Members on both sides that, in the case, for example, which we have in front of us to-day, of a country like France, which pursues an internal policy—it may be right or it may be wrong—which can only have the effect of raising prices, the currency of that country ought not to be artificially maintained by us or by any other country, but should be allowed to find its own level. There is no doubt that the French Government have pursued during the past year a policy which was bound to involve a rise in internal prices. That means, if the word "exchange" means anything, that the franc has got to fall, and it would be false economics, and a false policy altogether for either ourselves or the United States, to seek to bolster up the franc at an artificial level, in relation to the internal price level of France. There is no doubt that the present price level in France, and the price level which we can expect to prevail in future, necessitates a considerable fall in the exchange value of the franc; and, in so far as the new French Government are permitting that, I think that in the long, run we can only regard it as satisfactory, because it is another factor making for reality; it brings us back to the facts. As long as any important currency in the world is at an obviously artificial exchange rate, so long must the day of stability 1997 and of a genuine revival of confidence and of international trade be postponed. In so far as the present French Government are seeking, at long last, to grasp the nettle firmly, and to allow the franc to find its proper level, to that extent the prospects of a geuine revival of trade and confidence throughout the world are enhanced rather than diminished.
Then, I think, a desire was expressed on all sides of the House that there should be co-operation, and not competition, between the different exchange accounts; and, lastly, it was felt that some sort of de facto stabilisation was necessary, plus the abolition of exchange restrictions and commodity quotas, before we could ever hope successfully to negotiate a trade agreement with the United States of America, which was generally regarded as highly desirable. A necessary prelude to the negotiation of any trade agreement must be a de facto stabilisation, subject of course to periodical revision, and a removal of the exchange restrictions and quotas which are doing more than anything else to impede the volume of international trade at the present time.
If I may add a word of my own, more or less supplementary to the remarks I made on the Financial Resolution, I would like to say that not one shred of evidence was advanced in the Debate on the Resolution that there is at the present time in the world a superabundance of gold, or that, if conditions were more normal, there would be more than sufficient gold adequately to sustain the credit structure of the world. If there be such a superabundance, why should those who fear it and complain about it, like my right hon. and gallant Friend the Member for Ripon (Major Hills) or my hon. Friend the Member for Stockton-on-Tees (Mr. H. Macmillan), be so afraid of a de jure stabilisation? They both said that they feared a de jure stabilisation because of the deflation that might be involved; but, if there be this tremendous plethora of gold in the world, there could be no such risk in a de jure stabilisation. I myself do not want to see a de jure stabilisation; but I do not want to see it for the very reason that I am not convinced that there is, in all circumstances, enough gold available for monetary purposes in the world; and, I do not want to run any further risk of any kind of deflation; we have had enough of that since the War, and do not want it again.
§ Mr. Bellenger
Would the hon. Member qualify that statement by saying that the gold is not adequately distributed?
§ Mr. Boothby
Certainly; there is, of course, a problem of maldistribution, but that is a very different thing from a problem of superabundance, and we ought not to confuse the two. As a matter of fact, we have had striking evidence in the last few hours that there is not yet a superabundance of gold in the world, because at present the difficulty which confronts the French Government is due to the fact that they have not enough gold. They are faced with a serious financial crisis for the very same reason that we were faced with a serious financial crisis in 1932, namely, that we had not enough gold. All I would say is that I would much rather, human nature being what it is, and human beings thinking what they think, that we had too much gold, especially in existing conditions, than too little; and I say that both in my personal and in my public capacity. [An HON. MEMBER: "That is not Christian doctrine!"] I do not know whether it is Christian doctrine or not, but I know that it is sound sense.
It may be, as I said just now, that there is maldistribution; but both the causes of that maldistribution and the remedies are obvious; and, until those causes are removed, it is idle to talk about a plethora of gold or about a reduction of its price. We may have to consider that in the years that lie ahead, but that time has not yet come. No evidence was brought forward in the Debate yesterday that a reduction in the price of gold would not bring about commodity price deflation. On the contrary, I am absolutely convinced that, in present circumstances, if the price of gold were arbitrarily reduced, without good reason, there would in fact be an instantaneous fall in commodity prices. I make that assertion with confidence. I believe it to be true for one reason, if for no other, that every trader all over the world would undoubtedly regard a reduction in the price of gold as a signal that there was going to be a fall in commodity prices; and that overwhelming psychological factor in itself justifies the most strenuous efforts to avert a reduction of the price of gold.
Lastly, there is not the slightest reason to suppose that either the United States 1999 or ourselves could afford to reduce the price of gold. The United States Government has over £2,000,000,000 worth of gold at the present time, and it has pledged that gold for the future against the enormous expenditures to which it is committed. So far as we ourselves are concerned, I would say that the present burden of National Debt cannot be borne without a considerable further rise in money incomes in this country. I do not think the House realises that the debt burden of this country at the moment is almost double the annual national income, whereas before the War it was only one-third of the annual national income. The debt burden of this country is in fact crushing; and, if it is increased, any hope of balancing our Budget is, I think, finally removed.
As I said on the Financial Resolution, the problem confronting humanity for generations past has not been how to increase debts but how to write them off; and I do not think that problem is likely to alter for many years to come. If I were to suggest an immediate short-term solution of the problem that confronts us, the first and most important essential is the restoration of confidence, and I believe that to be as important from the political as from the economic point of view. I think that the Chancellor of the Exchequer is doing a great deal both in his speeches and by increasing this Account to restore confidence at a time when it is very badly needed. Another desideratum is to allow the commodity price level to continue its rise—not too fast—because commodity prices are not high enough yet, and genuine prosperity ultimately depends on the prosperity of the primary producer. After we have achieved the necessary rise, both in the United States and in this country, of wholesale commodity prices, then will be the time to attempt a de facto stabilisation through real co-operation between the Exchange Equalisation Funds. And this in turn should be an integral part Of that larger economic agreement which we all hope, to see between the British Empire and the United States, and which would be by far the most hopeful event that could happen in the world at the present time.
§ 5.17 p.m.
§ Mr. Assheton
The Chancellor of the Exchequer has had a very general 2000 measure of support for the Bill, but we ought not to overlook the fact that this additional £200,000,000 is only a palliative and not a cure, and that the time will very likely come when he will ask us for more. I think we realise, too, that this fund is needed not merely to iron out undue fluctuations but that it is now being used as part of high policy. It is only by the restoration of international trade and by a renewal of confidence, which will enable foreign lending to be begun once again, that we can hope for stability of exchanges. I hope that we in England and in the other countries of the Empire will appreciate that we have some contribution to make in discussion and negotiation for greater freedom of trade and exchange in the world, and I hope very much that in this country and in the Empire we shall be ready to take our share in making the sacrifices which all countries of the world will have to make if this is to be brought about.
§ 5.19 p.m.
§ Mr. Lansbury
I am not an expert on currency and exchanges and finance generally. I rise only to say a few words coming from one who really has no experience of the subject. What has struck me during the discussion is the fact that almost every one of what used to be considered the fundamental principles of finance, national and otherwise, seems to have gone West. The discussion that is going on to-day between the experts seems to go round and round the question of the value of goods and how you can get their prices even higher than they are to-day. I should have thought commodity prices were rising and have risen pretty considerably owing to the tremendous expenditure on armaments in every country in the world. The money that is paid in wages is spent in increased consumption, and, although the ultimate effect is from the point of everyone useless, it is still true that there is a very largely increased consumption because of the lessening of unemployment. I think that must be obvious even to the experts in the House.
There is one point which never comes out in this discussion, and that is that the money that this wonderful system costs must also come out of production. There is nothing produced of any value by the buying and selling of gold. There is nothing whatever added to the true wealth of the nation if it has many 2001 million pounds worth of gold. The only thing that adds to the real wealth of the nation is production by the social labour of all classes in the community who are taking part in it. I should have thought it was very nearly time the statesmen of the world faced up to the fact that this bogy of gold is something that we ought really to bury for good and for all.
Here is an amazing situation. In America gold which has been dug up somewhere or other is having to be housed in a new suite of premises which have been dug out of the rock in order to accommodate it. It may very well be that some gentlemen are making a good deal of money one way or another out of it, and it seems to me that they are a burden on the labour of the community. I should have thought that in the six years during which this Equalisation Account has been in existence someone might have been told off to produce a statement to the country as to the uselessness of pursuing the policy of the Gold Standard and to have at least attempted to work out better methods of exchange than those that prevail today. I may be ignorant, but I cannot for the life of me understand why money should be a commodity to be bought and sold. It may be that more people understand it to-day than did when a very noted financier who sat in this House once said that there were only three people who had ever understood international exchange and currency and two of them were dead, he himself being the other. How many there are to-day I do not know, because, as I listen to the experts, I get more and more bewildered.
I should very much like someone, perhaps the Chancellor of the Exchequer, to tell us why it is that we hang on to this worn-out system of determining the values of things and why it is that the three Governments concerned, and any others who will join with them, do not take measures to prevent gambling in exchanges in this fashion. Why should it go on at all? You can pursue criminals. These gentlemen are not criminals. They perform their business in the light of day and it seems to me that they ought to be told that this buying and selling and sending the value of money up and down should be ended. I do not think you will ever settle this question satisfactorily until that is done. I know 2002 some people will say that is an impossibility, but it is only an impossibility because of vested interests, and those vested interests are to be found in the financial headquarters not only of our own city but of all the other capitals of the world.
§ Mr. Boothby
If someone does not buy and sell currency, I do not know how you are going to establish values.
§ Mr. Lansbury
The value of anything that has a value should be the exchange between one set of goods and another, not whether someone has bought francs to-day and sent them up and thereby made the goods of more or less value as the case may be.
§ Mr. H. G. Williams
What would be the right number of tomatoes to pay for a railway ticket from here to Bow and Bromley?
§ Mr. Lansbury
It would depend on the amount of labour involved in producing the tomatoes as compared with the cost of the railway journey that I wanted them to pay for. That seems perfectly simple and quite reasonable. I do not believe that money should be treated as a commodity to be bought and sold. If the hon. Member is going to speak and to challenge what I say, let him challenge that. I do not think the currency of the country should be at the mercy of gamblers who wish to make money out of buying and selling; therefore I think some other method should be found. I use the word "gambling" because it was used by the Chancellor himself the other day. There is gambling in currency. People buy it for a rise or sell it because they are afraid of a fall. Governments ought not to allow the currency of their country to be dealt with in that fashion. Whatever is gained is gained directly or indirectly out of the labour of the country. There is no value in the transaction at all and it produces nothing, but very often causes great dislocation in trade and industry. It seems to me folly to be storing gold and shifting it backwards and forwards. A much better arrangement would be to buy an island somewhere and put up a great establishment and have vaults for each nation and, when you want to exchange gold from one nation to another, wheel it in. If that were done, ordinary people would soon understand what a ridiculous and mad 2003 system it is that we have been living under for many years, which has culminated in the fact that a nation which cannot keep its unemployed decently is able to raise money in the way we are going to raise this and, on top of that, £1,500,000,000 to spend on armaments. If that is not lunacy I should like to know what is.
§ 5.30 p.m.
§ Sir John Wardlaw-Milne
The other day when speaking in the House the right hon. Gentleman the Member for Bow and Bromley (Mr. Lansbury), who followed me, was kind enough to say that he did not often agree with what I said, but he did agree with some remarks I then made. I can pay him a higher compliment and say that I very often agree with what he says. This afternoon, although he has disclaimed to be any authority in currency maters, and indeed has said that he does not understand them, may I, without in any way claiming to be an expert in these subjects, say that he has put forward as good a case as I have ever heard for a currency based on price levels alone, and as to the uselessness of the so-called Gold Standard of the old days? He put it forward in a way which must appeal to everyone. The only difficulty is that he has not told us exactly how to bring about this very desirable state of things when the world will be able to do without that metallic basis for currency to which it has so long been accustomed.
§ Sir J. Wardlaw-Milne
The development of common sense is something that we all hope to see, but whether it will bring about the result that he desires in the lifetime of anybody alive to-day I am inclined to doubt. Nature moves very slowly in these matters, and unfortunately any new or untried basis for currency would, I fear, in the early stages, bring about a state of unemployment and distress, in the near future at any rate, which it might not be pleasant to contemplate and which the right hon. Gentleman above all others would hate to see.
My right hon. Friend the Chancellor of the Exchequer must be gratified by the reception which his proposals have received and for the compliments, in which I join heartily, to the management of the 2004 Exchange Equalisation fund in the past. But, as has been stated already this afternoon, there are really two aspects of this matter that we are discussing. The first is a temporary question, that of the provision of £200,000,000 extra for the Exchange Equalisation fund, and the second is the policy which this Government and indeed other Governments in conjunction with them must consider for the future. I am sure that there is no opposition in the House to the provision of this £200,000,000, although it is perhaps fair to say that the position has somewhat altered even since the House discussed the matter a day or two ago. There is, I am sure, equally no disagreement or divergence of opinion whatever regarding the desirability of our supporting the French Government and the French people in every way we can. But, as I understand it, when the matter was first introduced we were discussing the giving of £200,000,000 more to the Exchange Equalisation Account for the security of a fund which was being worked in conjunction with three nations, France, the United States and ourselves.
Is it going too far to say to-day that this country and the United States will in this temporary Measure have to carry one of the partners for a time? It looks to me as if that is the position in which we find ourselves. I do not say that it is a thing that we should object to. We may have to do it. It is in every way desirable, but it rather alters the position and it may well be that there will be a heavy strain on the Exchange Equalisation Account until the position in France alters, confidence is restored in that country and French money begins to flow back to its proper home. I do not in any way suggest that it is not desirable that we should support France, far from it. I am most anxious that we should. It is to their interests and to our interests, but it does not alter the fact that the strain upon us may be a heavy one, especially as we know that, in the purchase of unwanted gold, the United States have already gone very far. In this matter I am much in agreement with what was said by the hon. Gentleman the Member for Bishop Auckland (Mr. Dalton).
It is, however, rather in connection with the second or long-term policy that I want to say a few words to the House. The output of gold in the last two years has been phenomenal but mainly from Russia. 2005 The present position has come about largely by the fact that Russia which up to the end of last year largely retained her gold, has in this year been setting it free. Last year alone she produced 1,500,000 fine ounces more than the year before and is producing over 7,350,000 ounces now as against 1,700,000 ounces six years ago. We have to face the fact that if that production goes on increasing, added to as it is by the fact that in the last few years there has been a dishoarding of gold amounting to over £1,200,000,000 in addition to these excessive supplies from the mines, there well may come a time when neither the resources of this country nor of the United States could justly be used to buy up all this gold. It may well become impossible to continue, as the right hon. Gentleman and other hon. Members put it, to dig it out of one country and ship it to another and dig a hole and put it into the ground in Kentucky or elsewhere. If that position arises the situation would be a very serious one, and it is one which the Government of this country and of the United States must surely be considering at the present moment.
I do not disagree with my hon. Friend the Member for East Aberdeen (Mr. Boothby) when he says that there may not be too much gold in the world. I think that that may turn out to be the case. There are several reasons why one can justly say that you cannot make any real estimate of the position at the present time. In the first place, we have written up the price of gold, or, speaking more correctly we have reduced the price of currencies in terms of gold. Consequently there has been an exceptional output induced by the higher price, while the amount of gold used in art and industry is to-day about 5 per cent. of the annual output instead of 20 per cent., as is usual. There has also been this immense influx of gold from the East, and instead of the East absorbing about £15,000,000 of gold a year it has in the last few years given the rest of the world immense supplies. That situation may change. There is another reason however. Why are we not using at any rate more of the gold of the world than we are doing to-day? It is, I suggest, because we are not using it to raise prices. We are in fact, whether wisely or not is a matter of opinion, keeping prices low, and part of the trouble 2006 in the United States of America arises from the fact that she has found it necessary to restrict the amount of gold which is the basis of credit and therefore to lower prices or rather to keep prices steady and not allow them to increase as they otherwise would.
I do not suggest for a moment that the whole of this extra gold can be made the basis for credit. If that was done there would undoubtedly be a dangerous rise in prices at any rate for some time to come and possibly a highly dangerous inflation. At the same time surely there is a middle course between that and not using gold to the extent it ought to be used to allow that gradual increase in price level which is essential to the prosperity of the world. As far as this country is concerned the necessary steps were laid down by the Macmillan Committee as every hon. Member of the House knows, and confirmed by a resolution of the members representing the Empire who gathered after the World Economic Conference, namely that we should raise the price level, and, having raised it, should endeavour to keep it stable. Speaking very broadly we have not raised it. [Interruption.] Oh, no. Let me explain. We have raised it to nothing like the extent that was in the minds of these gentlemen. I cannot conceive it possible that it should be so. We are not even up to the 1929 level yet. We are still 10 points below that level, and it cannot be said that the gold of the world has been allowed to force up prices to an unnaturally high level.
I do not know whether the present situation was brought about by the agreement between this country and America. It may well have been that when the late President of the Board of Trade visited America the difficulties there were put before him, and also the dangers—and great dangers existed—of allowing this immense amount of gold to be used as the basis of credit, and that it was agreed perhaps that it was desirable to do something to damp down the upward movement. At any rate that was done very successfully, in fact, perhaps too successfully. It went too far the other way. The point that I specially want to make in that connection is that we have not to any extent allowed this gold to be the basis of credit and thereby raise prices to a level which would bring 2007 prosperity. I have often heard in this House the statement that we are in a boom period. I wonder where hon. Members get that idea?
§ Sir J. Wardlaw-Milne
Speaking of the world, at any rate, there is far from being a boom; I doubt whether it is yet really out of the depression. I do not say that we are in a boom period here. I will give the House a figure or two to show that what I say is correct. The wholesale price level in this country last year was very little above that of 1913 and a good deal below the average level in this country from 1850 to 1880. It is perhaps a considerable surprise to some hon. Members to know that to-day the price level here is below that of the middle of last century. We are actually only 20 per cent. above the lowest figure for 150 years. That low level was reached at the beginning of this century. If you consider the change in currency conditions, you will see that in this country at any rate we are not in any way in a boom. It was not more than six years ago that things began to change for the better here. It may well be that the Biblical period of the seven lean and the seven fat years has often been followed. It is true that very often in the past there have been five, six or seven good years and then five, six or seven bad years. In this case, if the change began six years ago in this country, it clearly did not begin in America until 1934, and in Germany about the same time, while in what we call the gold-bloc countries it was not until last year that there was any change at all. Therefore, there certainly is no cause for saying that the world is suffering from the effects of a boom.
§ Mr. G. Strauss
Does not the hon. Gentleman consider that the wholesale price level is a fair indication of boom conditions, in view of the fact that the costs of production, owing to the introduction of labour-saving machinery and other devices, of practically all commodities, have gone down during the last five years?
§ Sir J. Wardlaw-Milne
I agree. There is no actual factor that will indicate absolutely correctly the situation. I do not know of any other, however, that I could give to the House to afford any 2008 better proof that what I am saying is correct. My submission is that if there existed a boom period, there would be a large increase in prices and in the cost of living. There has been practically no increase in the cost of living. The cost of living last year increased in this country by only 3 per cent. The increase was less than that in America. It was 2 per cent. in Switzerland and in Italy 6 per cent., while in Germany, Austria and the Netherlands there was no change at all.
The point that I want to make is, that in the long-term policy which the Government in conjunction with other governments will have to consider, it is fair to say that more use should be made of some of the gold that is available, as a basis for expanding credit in the world. It is extraordinarily difficult to restore international trade. It is so easy for any of us to stand up and say that we ought all to trade together and that we ought to remove barriers, but it is extraordinarily difficult to do it. In our present position the simplest way to restore international trade is to lend money, so that people can buy your goods. If we do that, they often merely pile up debts which they cannot pay. It may well be that by the time we have made use of some of the gold which is available, in order to raise the price level in the world, the world may again be buying gold instead of selling it. Gold may become not scarce but much more in equilibrium with what the world requires for currency purposes than is the case to-day. Although I do not, like the hon. Member for East Aberdeen (Mr. Boothby), go so far as to suggest that there will be a shortage of gold, I do say that in the future it is possible that there will not be very much more gold than is required for the expansion of trade.
§ Sir J. Wardlaw-Milne
Gold is available in only two or three countries and used only to a limited extent in the other countries, and in some none at all is used. Therefore, it is too early to say 2009 that there is too much gold in the world. In addition to giving the world a chance to use some of this gold for the purpose of expanding credit and raising prices, and thereby bringing prosperity to the different countries, it is necessary to consider the sad fact that the expenditure of the world in arms is to-day three times greater than ever before. I maintain that that enormous expenditure makes it very difficult to see daylight ahead. It is more than sad that after 2,000 years of preaching of the gospel of peace, the world is to-day spending on useless arms three times the amount it has ever spent. Therefore, it is not only a financial but a political question with which we have to deal—How to restore confidence in each other and peace.
My last words are to repeat what I have asked the Government to do, and that is to consider whether they cannot take steps, in consultation with the United States of America and later on, and I hope soon, in happier days, with France, to raise the price of commodities, to use some of this troublesome gold for that purpose and thus to set about tackling the problem to which the representatives of this country and the Empire set their hands at the end of the World Economic Conference, a resolution which was strongly supported by the Macmillan Committee, and which, if carried out, would do much to bring prosperity to this country and the world.
§ 5.51 p.m.
§ Mr. Garro Jones
The hon. Member for Kidderminster (Sir J. Wardlaw-Milne) has made a very useful contribution to our Debate, but I confess that his remarks have done nothing to relieve the wonder which has grown upon me during the course of this discussion, that we should be content to rely upon so inexact a science to guide us in our economic and financial affairs. I think it would be unfortunate, after the chorus of approbation which has fallen upon the ears of the Chancellor of the Exchequer, if no word of caution was uttered against undue complacency. There are two extremely disquieting features of the gold and currency situation. The first is the largely increasing production of gold, and, on the other hand the growing sense of disinclination which is to be found both in Government and private circles in many parts of the world against relying upon gold.
2010 The production of new gold in Russia has been referred to by several speakers, but what has not been very clearly pointed out is the enormous rate at which the production of new gold is proceeding throughout the world. The amount of gold which is being dehoarded is not a subject that need give rise to any anxiety, but the amount of new gold which is being produced is undoubtedly an extremely disquieting factor in the situation. Whereas only 19,000,000 fine ounces of gold were produced in 1929 there were 35,000,000 fine ounces produced in 1935. In the last six years the production of gold in Russia alone has increased sevenfold. We may very easily find ourselves being compelled to absorb within the next three or four years gold to the value of £100,000,000 from Russia alone, and if her rate of increased production is maintained it is not unreasonable to suggest that within To years Russia will be producing and exporting gold to the value of £200,000,000. That is a serious threat to the solvency of the fund to which we are now proposing to add £200,000,000. If as a result of that enormous increase in the production of gold it became necessary, as it very well might, to devalue the vast holdings of gold which we shall then be compelled to absorb, this fund might very well find itself insolvent, and an amount of from £100,000,000 to £200,000,000 might have to be added to our national debt.
Parallel with that situation we have the increasing disinclination to hold gold which only in the last few weeks has been a very obvious feature on the part of private individuals. Private individuals do not constitute the worst part of this story, because we find that countries like Germany and Italy are becoming accustomed to operate their economic systems without the use of gold. I heard the Financial Secretary this afternoon making it a matter of boast that there were signs in many parts of the world that people and States were preferring to hold sterling securities rather than gold. That might be a matter of pride from the national point of view, but from the point of view of this fund, which is what we are discussing to-day, it is a very serious and disquieting sympton. In the meantime, we are continuing to pay a vast tribute, 2011 amounting to £250,000,000 in 1936, to the gold producers of the world, and this may well increase to £500,000,000 in 1940 if the present rate of increase is maintained. In the light of this situation let nobody suppose that there is some wise dispensation, either at the Treasury or at the Bank of England, which can see its way clearly through the intricacies of this gold theory.
The most eminent writers on this subject confess to its complexity, and the usual signs of ignorance and knowledge on this subject are inverted, because the men who know most are the least willing to commit themselves to any specific theory. That plain fact is, and no one who has studied the question will deny it, that all the nations of the world as regards their currency and financial systems are off the rails and are attempting to control their economic system by empirical methods, which are leading to big rushes out of the difficulty by the most obvious way. This £200,000,000 is the third rust that we have made in this particular direction, and although it gets us out of our immediate difficulty, nobody can say that it carries us nearer to our goal of financial and international stability. We are not in any better situation on account of the threat that is held over our heads that if we cease to keep on purchasing this gold we shall be plunged into chaos and complete economic confusion. That threat means, in other words, that unless mother earth continues to yield up just so much of this yellow metal as will enable financiers to maintain the equilibrium of the system by which they are guided, we shall be plunged into economic disaster. I think that situation is one which calls for greater consideration and certainly greater foresight than we have yet had from the Government.
I have been reading, as I suppose other hon. Members have been reading, in the last few days, some articles on gold by, perhaps, the most eminent authority on this subject, Mr. R. H. Brand, managing director of Lazard Brothers, and a director of Lloyds Bank. If any other qualifications were needed, tie was a member of the expert committee advising the German Government on the stabilisation of the mark in 1922. No one could read his three articles, which appeared in the "Times," without being appalled at the 2012 inexactitude and uncertainty of the system upon which, apparently, our whole financial stability depends. Mr. Brand hardly dares to make a single definite statement throughout the whole of his con tributions. I am going to read two of his statements to serve as a subject for reflection. He said:Two questions may perhaps be asked by the layman.Certainly, I subscribe to that statement:The first is, why countries like the United States and Great Britain each having enough or more than enough gold, continue to buy it?The answer is that to refuse to buy it would be to demonetize gold; there would be no common denominator between currencies, and the whole world would be thrown into chaos and confusion.In spite of that it is a matter of serious doubt as to whether or not it is a wise policy on the part of this Government and the United States Government and other Governments to continue to buy gold, and we are confronted with various alternatives which have not been probed. One is whether it would be possible to restrict the output of gold, as though they were diamonds, as if suddenly Russia were to become in the case of gold what the Rand became in the case of diamonds, whether we could sufficiently restrict the output of gold and still maintain that confidence in it which according to the financiers is fundamental to our financial system. Bearing that statement in mind let me read the conclusions of Mr. Brand. He recognised that a policy of international appeasement is the only direction in which we are certain to find some relief from our doubts and difficulties, and speaking of this policy of appeasement he concludes:If this policy were given every chance to prove itself, if at the end of a sufficient period it seemed clear that both the United States and this country ought to buy more of the gold than they could require for any possible contingency, yet must continue more or less indefinitely to do and sterilise a great part of the actual output, the question would arise whether the indefinite increase of these unwanted stocks was consistent with the principal aim in view—namely, the maintenance of confidence in gold.I will do no more in this intricate discussion than to commend these articles to the consideration of the Chancellor of the Exchequer and the Financial Secretary, and to express the hope that as a result of their study they will be able to base our financial policy upon something 2013 more exact and more sure than the uncertain foundations upon which we appear to be basing it to-day.
§ 6.5 p.m.
§ Mr. Granville
I shall occupy only a few minutes of the time of the House. I think the Chancellor of the Exchequer will have very little difficulty in getting this £200,000,000 for the Exchange Equalisation Fund. Although in introducing the Financial Resolution on Monday he did not give very much away, the Chancellor of the Exchequer did say that the policy of the Government was in accord with the policy of the United States of America, and in reply to a private notice question to-day he said that it was in accord with the policy of the new Government in France. I think it is quite clear that this fund can be used for tripartite co-operation and not for currency competition. There is nobody in this House who would desire to say a word to increase the difficulties of the new French Government, and I am certain that there is no one who would wish to increase the difficulties of the American Government, although the hon. Member for Oxford University (Sir A. Salter) on Monday said that he had found opinion in America which was rather anxious because we were using this fund for the purpose of bolstering up British exports. I should have thought that what has taken place in the last 48 hours and the action of this country and the American Treasury has demonstrated that this tripartite fund can be used in co-operation although the immediate interests of this country may not escape.
We are being asked for another £200,000,000 for this fund, and those who have followed its history must now be of the opinion that it is no longer a piece of Treasury machinery but has become a weapon in international economic policy. One hon. Member has referred to the activities of the Exchange Equalisation Fund as State Socialism. I think it could be more accurately described as the Government's responsibility in minimising financial and economic dislocation. We are inclined, I think, to allow the Debate to go on and say that this is merely an addition to the Equalisation Fund to carry out operations which have been going on for some considerable time, and we are inclined to forget the enormous influence of this new potent 2014 weapon in economic and financial policy. It can by its operation have some effect on booms and slumps and prices, and it can enable, as it is doing at the moment, the Government to weather an economic storm and even a political storm. I confess, however, that I am concerned more particularly with the day-to-day control of its policy and its operations. It is a new thing for a Government of this country to handle such an important weapon in international financial policy. We read in the Press that in the Cabinet there is a committee which considers questions of foreign affairs. I am wondering whether there is in the Government any similar method of dealing with these far-reaching questions as they are affected by the operations of this fund.
The Chancellor of the Exchequer may not be able to answer some of these questions, but I should like to put one or two. There is a great deal of uncertainty, and I think a good deal of anxiety, in the business minds of the country and in this House, as to how this fund is operated and conducted by the Government in relation to the Treasury and the Bank of England. I should like to ask whether the Chancellor of the Exchequer s himself solely responsible for all questions affecting the activities of the fund. I should like to know whether the Foreign Office and the Board of Trade are consulted on the policy and operations of the fund on those questions where they must be definitely affected. Also, I should like to know whether in the operation of this enormous sum of money, £550,000,000, the Chancellor of the Exchequer is in daily contact with questions of policy and operations, or whether they are left to the Treasury officials in conjunction with the Bank of England. This may be a lot to ask, but the Chancellor of the Exchequer, having made already certain concessions, would bring a good deal of light to some hon. Members if he would give us some indication of the Government's operations behind the scenes from day to day.
The Prime Minister last week had a great success in foreign affairs by his calm statement, which had a reassuring effect upon the European situation. As a supporter of the Government I recollect that he also had a great success as Chancellor of the Exchequer. He was responsible for creating conditions of confidence which led to a revival in this country and 2015 gave an example to other countries. It has been said that the voice which introduced the Financial Resolution was the voice of the Chancellor of the Exchequer but the hand was the hand of the Treasury official. Perhaps what really was meant was that the voice was the voice of the Chancellor of the Exchequer, but the hand was the hand of the Prime Minister.
I hope the Prime Minister will recognise the importance of these questions and will continue to give some attention to his old love. I hope also that the Government will realise that questions which affect gold affect every business and industry of the country, and also the country's financial operations in its export trade. I hope the fund will not be operated in seclusion by mysterious figures at the Bank of England and the Treasury. It has become so big that it touches the whole policy of the Government both at home and abroad. Therefore, I hope the Chancellor of the Exchequer will be able to give us more information about what goes on and of the policy behind the fund in its day-to-day operations, and that its long-term policy will be consistent with the Government's policy and in accord with the will of this House.
§ 6.13 p.m.
§ Mr. Bellenger
I desire to say only a few words because on Monday night I expressed my opinions on the Resolution. The reflections which have been passing through my mind in listening to the speeches made to-day and on Monday are these: It seems to me that the tributes which have been made to the lucidity and cleverness of the Chancellor of the Exchequer in introducing this subject are just a case of the blind leading the blind. That is obvious from the speeches which have been made, many of them full of interest and knowledge. What is this knowledge? We have had a reference to articles which have appeared in the "Times" by Mr. Brand. They are exceedingly interesting to read, but do they give us any indication as to how the Chancellor of the Exchequer in this country, or in any other country, can so base his policy that the world can be brought back to a state of sanity? There is no denying that in financial and trading matters the world is fast approaching insanity.
2016 When we are asked to approve of £200,000,000 extra for this fund, we should approach it from the standpoint from which hon. Members opposite would approach a proposal to increase the capital of their business, because that is what we are being asked to do. We are being asked to increase the capital of this country in order to foster and increase international trade. Is it having that effect? If a suggestion is made before a board of directors that there should be an increase in capital, the directors ask what is the purpose—is it to buy more machinery, is it to make more profits? If the answer to both questions is in the affirmative, the directors are generally prepared to agree to the increase in capital. If we apply those two tests to the £200,000,000 for which the Chancellor is asking this evening, can we honestly answer in the affirmative, and say that the volume of trade of this country, or international trade, is greater or is likely to be greater? That, I venture to suggest, was the main object for which the fund was inaugurated.
No, Sir, I have come to the conclusion that all these exchange equalisation funds are pure experiments. They remind me of the days during the War when I was an artillery officer, and when we had to get on to the target. The way in which we did it generally was to get a plus and a minus, a left and a right, and gradually to approach the target, until we got what was called an "O.K." That is what is being done in exchange equalisation funds all over the world at the present time. Nobody knows whether we are going in the right direction. In France, for instance, first of all the franc went up, then it was revalued, and now it is to be devalued again. Do the financiers there know, any more than do the financiers or the Treasury in this country, or in any other part of the world, where they are leading the world? I suggest that we ought to concentrate on a policy —a stable policy, if you please—which will do away with the necessity for these exchange equalisation accounts. If we can reduce the barriers to international trade—I know there are difficulties but we have to make a start somewhere—if we can produce more confidence in the world—there is no confidence at the present time, but only fear of war, and every 2017 country is turning its efforts to the production of munitions, which is non-productive enterprise—if we can change our direction and try to bring about increased international trade which will benefit the masses of the people all over the world, then there will be no necessity for these huge exchange equalisation accounts.
In conclusion, relative to my remark that in this Debate the blind seem to be leading the blind, I ask the right hon. Gentleman whether he can give a little more information when the time comes, not only to the Public Accounts Committee but to the whole House, as to the working of the fund, not how profits are made or how losses are made, if there be losses, but on such things as the management costs of the fund. What is the cost to the country in interest charges, and so on? We might then be able to form some balanced opinion as to the necessity for this Exchange Equalisation Account and its purpose, whether it is for the benefit of the people and whether it is keeping the exchanges stable so that we can get more international trade.
§ 6.19 p.m.
§ Mr. Radford
The subject of foreign exchanges is not one of which I am in any way the master, and it is rather a disappointment to me, after the Debates on the Money Resolution and on the Second Reading, to feel that my knowledge is no greater at the end than it was at the beginning. That I attribute to my lack of powers of absorption, but frankly, in listening to the speeches of hon. Members in all parts of the House, I was struck either by the vagueness of what they said or the wonderful discretion with which they managed to hide what it would have been indiscreet to say. I do not wish seriously to criticise my hon. Friends or hon. Members opposite, but I feel that I know no more about the subject than I did before the Debates took place.
I would like to ask my right hon. Friend the Chancellor of the Exchequer whether it is possible for him to set some of my apprehensions at rest. On Monday last, my right hon. Friend stated that on 30th March, 1937, the Exchange Equalisation Account, which at that time was £350,000,000, had as one of its assets 26,674,000 ounces of fine gold which, valued on the basis of £7 a fine ounce, amounts to £186,718,000. The right hon. 2018 Gentleman did not give that figure, but I have worked it out. Not all of that gold, at any rate, had cost the Account as much as £7 a fine ounce, as some of it was bought during the period when gold was much cheaper; but taking it at that higher figure, and assuming that the Account has no liabilities apart from its one inclusive liability of £350,000,000, there are other assets to be accounted for to the extent of over £163,000,000. I feel that that is a very serious matter.
Are those other assets foreign exchange? I cannot help carrying my mind back to about 1922, when the foreign exchange troubles of Germany were the preoccupation of Governments throughout the world. If I remember rightly, the German mark at that time stood at about 120 to the £, and I remember that the view was held by many experts—men who spent their time in international dealings—that the mark was certain to recover now that the waste of war was no longer ravaging Germany. If we had had an Exchange Equalisation Account at that time, and had taken steps to iron out either the variations in or the trend of the value of the mark, since it was on a falling basis the only form which our ironing out could have taken would have been to buy marks, and, of course, every mark that we had bought would have become valueless, for we all know the astronomical number of marks that one could buy later on for a £. We are now to borrow another £200,000,000 to add to the £350,000,000 already in the Exchange Equalisation Account. I wonder whether that will find its way into the purchase of gold? Most of the speeches in the Debate have implied that it would go to add to our stocks of gold, not necessarily by buying gold direct, but perhaps by buying foreign exchange and then realising it for gold from those countries which will honour their obligations. I am not fond of buying gold, but I would rather we held gold than foreign exchange.
I think the best news which my right hon. Friend the Chancellor of the Exchequer gave on Monday was that we are to have a sort of post-dated balance sheet submitted to us in future. I have always thought that it was an extraordinary anomaly that the House could have handed over first £150,000,000, subsequently raised to £350,000,000, and now another £200,000,000, without asking for 2019 details as to how it would be used. Even right hon. and hon. Members opposite, who are opponents of the Government, pay a high Tribute to the Government by the willingness with which they agree to receive no details as to how the money is to be used. In making those remarks, I am not in any way speaking against the Government because if hon. Members opposite trust the Government, surely I do; and I feel sure that the fears I have expressed are groundless. Nevertheless, I feel that I should be failing in my duty if, at the close of this Debate, I did not draw attention to the fact that there must be a colossal amount of other assets. I hope that it may be possible for my right hon. Friend, when he winds up the Debate, to see those fears at rest.
§ 6.27 p.m.
§ Sir John Mellor
I rise to put one question to the right hon. Gentleman the Chancellor of the Exchequer. Section 24, Sub-section (3) of the Finance Act, 1932, authorises the Treasury to use the funds in the Exchange Equalisation Account for the purpose orchecking undue fluctuations in the exchange value of sterling.We have heard with satisfaction that the Chancellor of the Exchequer took the view that the sum could be used to damp oscillations in currency, and not for the purpose of maintaining sterling at any particular level. The question I wanted to ask the Chancellor of the Exchequer was this: Did the words in the Act,the exchange value of sterling,in the view of the Treasury, apply exclusively to the value of sterling in terms of foreign currencies, or did they extend to the sterling price for gold, and further, did they have any relation to sterling commodity prices?
§ 6.29 p.m.
§ Mr. Lewis
I am one of those who, when this subject was discussed on previous occasions, repeatedly urged that some information ought to be given to us about the working of the Exchange Equalisation Account. When that request has been made on previous occasions, it has always been refused, and it has been suggested that if a single item of information were to be given, some frightful calamity might follow. I am very glad that the new Chancellor of the Exchequer does not take that line, and 2020 I feel that he has given up, what I hope I may without offence describe as, secrecy for secrecy's sake. The right hon. Gentleman proposes to make a distinction between those items of information about past matters which can with safety be revealed and those items of information about current matters which clearly could not be revealed without stultifying the purpose of the fund. I must say that I have a good deal of sympathy with some of the observations made on this subject by the hon. Member for North Lambeth (Mr. G. Strauss). I hope that now that the Chancellor of the Exchequer has expressed a willingness to give us information on this matter, he will not be niggardly in the information that he gives. I am sure we could be told periodically much about the working of the fund which would not only be of great interest to hon. Members, but would have a reassuring effect on public opinion outside.
With regard to the management of the fund, we have not had any details, but we have, at any rate, seen some of the broad effects of its operation. In order to appreciate them, we must try to remember some of the difficulties which have been involved in the control of the fund since we went off the Gold Standard. There were no precedents to follow and decisions had to be taken involving immense sums of money and important interests, not only in this country, but grave international interests also. I think many hon. Members feel, and I am certain many of the public outside feel, that we ought to be grateful to those members of the staff of the Treasury who, week after week, in the face of great difficulty and uncertainty, have conducted the affairs of this fund to such good purpose.
It is, of course, difficult to please everybody. The policy of cheap money, which has been so greatly assisted by the operations of the fund and which has been so much welcomed by industry, has brought its own hardships with it. It has made things difficult, for example, for those who have to invest trust funds. Trustees who are limited by law to a small class of investments, where the creator of the trust has not given them discretion otherwise, found it exceedingly difficult to invest those funds satisfactorily. First, they were faced by the very severe drop in the rate of interest available. Now they are faced by the danger that when they realise some of these investments 2021 made during recent years they may be faced with a substantial loss on them. I am afraid that in some cases such people placed rather too much reliance on the protestations made, no doubt in perfectly good faith, from time to time from the Front Bench with regard to the policy of cheap money. In regard to the rate of interest, it is not what the Government says but what the Government does that matters. When the Government were pursuing a policy of retrenchment and reducing the debt of the country, it was not difficult for them to maintain low rates of interest. Now that they have had to reverse that policy and go in for a policy of spending, a policy which holds out a prospect of an addition to the National Debt, it is quite another story.
I am not for a moment suggesting that the Government should be blamed for that change of policy. Circumstances with which the House is only too familiar compelled that change. I hope the Chancellor of the Exchequer will recognise all the effects which that change is likely to bring in its train and will not hold out false hopes of money at rates cheaper than it would be possible to maintain. More than that, I hope he will not endeavour to resist the economic forces which, in the long run, are bound to have play and in resisting and delaying which, he may ultimately do more harm than good. I hope that the right hon. Gentleman on behalf of the Government will recognise that rates of interest will not go back to what they were last year and that there is a probability of an increase, in the not very far distant future, beyond what they are to-day.
I particularly hope that the Chancellor of the Exchequer will give us some information on a question which has not so far been raised in this Debate. One of the principal effects of the operation of the Exchange Equalisation fund is to maintain the sterling price for gold. I am not debating for the moment, whether that is one of its principal purposes or not. It is certainly one of its principal effects and whoever may benefit or may not benefit by the maintenance of a high sterling price for gold, it is certain that gold producers benefit exceedingly thereby. We have heard references to what the Government of the United States have done or are doing in the matter of sold sterilisation, and to what we have done or are proposing to do in 2022 that matter. There have also been references to what the authorities in France have done or ought to do, but there has been no reference, so far, to the Government of South Africa.
The present prosperity of South Africa is largely based on gold production. Taxation in South Africa depends for its yield very largely on the output from the mines and that, to a great extent, depends on the sterling price for gold. I ask the right hon. Gentleman this question on which, I think, we are entitled to an answer. What proposals, if any, have the Government of South Africa made to our Government to assist in this difficulty of the temporary surplus of gold? I use the word "temporary" because no one can say with certainty that it is otherwise. Have the Government of South Africa made any suggestion of limiting, for the time being, the output of the mines, or, if they do not regard that course as feasible or desirable, have they made any suggestion for themselves retaining in South Africa and sterilising, any quantity of the gold produced by those mines at the present time.
I think we ought to hear specifically from the Chancellor of the Exchequer whether any proposals for assisting us in this difficulty of the present surplus of gold have been made by the Government of South Africa who themselves reap so great a benefit from our efforts in maintaining the sterling price of gold. If the right hon. Gentleman is not in a position to assure us that any offers of help have been made, may I ask him further, whether upon reflection, he will suggest to the Government of South Africa that this is a matter, in regard to which, they might well help? In conclusion, may I express my personal wish to the Chancellor of the Exchequer that he may have good luck in those grave and terrible responsibilities in connection with our monetary system which now fall upon him and in particular in the management of this fund.
§ 6.39 p.m.
§ Mr. H. G. Williams
From the nature of its subject-matter this Bill has opened nut a very wide range of debate. The right hon. and gallant Gentleman the Member for Newcastle-under-Lyme (Colonel Wedgwood), who rose a second too late just now, will probably follow me and I shall no doubt furnish him with a certain amount of material which may 2023 prolong the Debate unnecessarily, but I shall do my best to avoid that contingency. I am sory that the right hon. Gentleman the Member for Bow and Bromley (Mr. Lansbury) is no longer in the House. He quite honestly gave expression to a view which is wrong and misleading. He expressed the hope that if I made any comment on what he said, I would not quote him inaccurately and I shall endeavour not to do so. He said, in effect, that it was a terrible mistake to have anything at all to do with gold for monetary purposes and that he would solve the whole problem by common sense. I think that is a fair summary of the right hon. Gentleman's statement.
In reply to an interruption by me, as to the basis on which he proposed to value things, the right hon. Gentleman then used the phrase "social value"—one of the cant phrases of Socialist literature. On that basis, I wonder what number of tomatoes would be required to purchase a railway ticket from here to the right hon. Gentleman's constituency. The right hon. Gentleman said that all this gold was useless, that our monetary system was inefficient and that it and our banking system simply represented so much waste. Of course the right hon. Gentleman was expressing that view honestly and sincerely but it is plain unadulterated nonsense. The invention of money was most valuable in saving the time of man. There is an incredible waste of time and effort involved in barter which can only be avoided if you discover something which is, first, a measure of value and then a means of exchange. You can use paper money for that purpose but the trouble is that no one has any permanent faith in it because there is no limit to the quantity.
§ Mr. MacLaren
The hon. Member is misquoting my right hon. Friend the Member for Bow and Bromley (Mr. Lansbury). I think he wishes to be fair and he will allow me to say that the question at issue at the moment when he interrupted my right hon. Friend was this: My right hon. Friend had said that there was a value attaching to things and the hon. Member interrupting asked him what would be his basis of assessment of the value of commodities. My right hon. Friend, quite rightly in my opinion, answered by saying that the labour 2024 necessary to produce things would De the basis of assessment of their value. I submit that he did not enter into the question of currency but on the contrary proclaimed to the House that he knew so little about currency that he would not discuss it at all.
§ Mr. Williams
I do not think I have misquoted the right hon. Gentleman but the hon. Member's interruption saves me a certain amount of time. We have to value things somehow and it sounds easy to say that you can value them by the amount of social labour expended on their production. But that is what the golden sovereign does. That is its primary purpose. It does not touch the issue to say: "Do not have any golden sovereigns; let us do it this way," without prescribing a measure. It is like trying to measure a room without a foot rule. You must have a means of measurement and you can use paper money or you can use gold. The trouble about paper money is that it is like a foot rule made of indiarubber. You can stretch it as much as you like.
§ Mr. Williams
Yes, but it is a rubber which is rather more stiff than the other. As a matter of fact the commodity price of gold has not varied to an enormous extent over the last 25 years. There has been a certain decline since our departure from the Gold Standard because of the peculiar position of sterling, but there has not been an enormous variation. In France commodity prices are now seven times as much as they were in pre-war days, because they changed their whole basis. I suggest that, for monetary purposes, you require a commodity of this kind, if you are to have a simple system and the world is more gold-minded today than it has ever been in the past. We are not really off the Gold Standard. We are right on it, though we are not using it as intelligently as we might. The hon. Member for Bassetlaw (Mr. Bellenger) said—and I hope I shall quote him correctly—that, in finance, the world was approaching insanity. I agree there is a tendency for the world to become more Socialistic than it was.
§ Mr. Williams
It is a reasonable explanation anyhow. The plain truth is that you must have a means of exchange and a measure of value. For that you must have some commodity which has a cost of production and if you can choose a commodity, the cost of production of which does not vary very violently, and which, itself, is imperishable, that is the most convenient commodity you can have as the basis of your monetary system.
§ Mr. Loftus
But surely in Sweden for several years they have maintained an absolutely stable level of prices on an index of commodities and not on gold.
§ Mr. Williams
With profound respect, they have not done so. It is no good saying that they have maintained the level of prices in Sweden. Does anybody say that the price of timber there is the same as it was two years ago?
§ Mr. Williams
It has. Butter has gone up, the price of wheat is higher than it was three years ago, the price of iron ore has risen, and the price of electrical machinery has gone up. These are things that I know offhand, so what is the use of the hon. Member saying that the price level in Sweden has not gone up in the last two or three years? It has gone up enormously, and their currency has maintained approximate parity with ours. Does the hon. Member mean that prices in Sweden have remained stable while our prices in this country have gone up substantially, and that the currencies have remained at the same parity? The thing is impossible, and without any knowledge of what has happened to prices in Sweden, the knowledge of what has happened to prices here proves that the statement of the hon. Member for Lowestoft (Mr. Loftus) is inaccurate.
Ultimately gold derives its value from the fact that it has a cost of production. That cost of production is represented by the maintenance of the people engaged in producing it and the profit of those whom they employ, and you may have a temporary period, such as the present, during which abnormal profits are obtained, but over a long period of time gold has a cost 2026 of production which gradually undergoes changes in one direction as machinery is devised and in the other direction as mines get deeper. In the long run gold exchanges with other commodities on the basis of the respective average costs of production, and, therefore, gold is a convenient method for measuring the cost of journeys to Bow and Bromley, and the Gold Standard system is the most convenient thing that has ever been invented for currency purposes.
The question at issue now is, Are we going to have that system, under which we are rigidly tied to gold, or are we going to be tied more elastically? It is said that there is apparently a glut of gold, but there is not, for there is an acute shortage of gold in many European countries. If you talk to the Italians, you will find that they deplore the decline in their gold stocks, and if you talk to the Germans, you will find that they deplore the decline in their gold stocks. A great many other countries in Europe deplore it. Poland, for instance, would be glad to see a large enhancement in their gold stocks, and one of the things that we have to solve is the restoration in these countries of adequate gold reserves to maintain their credit structure and enable them to play their full part in international trade. The reason why they cannot do it is largely the fault of their own policies. Let us realise the fact. Germany, Italy, and some of these countries have inflicted upon themselves the economic evils from which they are suffering at the present time.
The hon. Member for East Aberdeen (Mr. Boothby) was, like a great many other people, very anxious that we should enter into a trade agreement with the United States of America. I never understood this enthusiasm for entering into a trade agreement with the United States. I do not know what we are going to get out of it, but one of the reasons given is that if we do not, they will depreciate the value of gold. Will they? They have got £2,000,000,000 of it at some parity or another. At any rate, I think we call it worth £2,000,000,000, and if they depreciate the price of gold, they will themselves be the biggest losers. I see not the slightest reason why we, at our expense, should bribe the United States not to do something which it would be to their disadvantage to do. I have yet to discover 2027 any valid reason for rushing into a trade agreement with the United States. So long as they are selling us three times as much as they are buying from us, I do not see why we should make any special arrangements to facilitate the expansion of their trade—very much the reverse—and as long as they spend money—large sums of money—in subsidising their boats to try to drive our ships off the Pacific Ocean, I should be more anxious to denounce our existing trade agreement with the United States, so as to be able to put penalising duties on their goods coming into this country. That is another point of view which ought to be borne in mind, and as soon as people in the United States begin to know that not everybody here will be rushing to embrace them, the better it will be for them. I did not mean to say all these things, but unfortunately I was called upon to speak rather later than I had anticipated and was stimulated by what others said.
I want to put to the Chancellor of the Exchequer now, in the hope of an answer, a question which I put to him on Monday to which I did not then ask for an answer. To what extent have the evils from which we are now suffering been created by the existence of the Exchange Equalisation Account? That is a fair, challenging question. I think that to a substantial extent this fund is the cause of some of those evils. I did not think so four or five years ago, but I am inclined to think so now. What is the object of the fund? It is to prevent people in this country who happen to hold foreign balances or to prevent people in foreign countries who happen to hold sterling balances, suddenly, for reasons of speculation and still more for reasons of fear, undertaking panic withdrawals. The Chancellor of the Exchequer has got this great fund and now he will have another £200,000,000. I now realise the immediate purpose of it, which we did not know on Monday. It is to assist the French, and incidentally ourselves, in their present acute difficulties, and that, in my view, justifies this proposal, which, therefore, I shall vote for, but that is no reason why we should not look beyond this French matter.
I am dubious whether we are right to go on with this fund on its present scale. When the Exchange Equalisation Fund buys gold from a foreigner, it pays 2028 him by giving him a credit, somehow or another, in some banking institution in London. In other words, we increase that quantity of what in the City is called "hot money." We build up credits in France, and the French build up credits here, we build up credits in the United States, and they build up credits here, and we thus place at the disposal of great masses of people the power to panic and upset our internal finance. If you destroyed entirely the Exchange Equalisation Account, if you could do it by a stroke of magic, without great disturbance, you would incidentally destroy, with no loss to anybody, £350,000,000 of foreign credits in London and £350,000,000 of British credits overseas, and you would wipe out this panic money that has caused the trouble and that we are now proposing to increase. That is my judgment. I have thought over my observations on this topic on Monday last, and I have discussed them with a great many people, but I have not found anyone yet who has dissented from them, and therefore, not out of any hostility to the promoters of these proposals, because I supported the original scheme in 1932, but because of further examination, I doubt whether we are doing a wise thing from a fundamental point of view.
Last night, before going to bed, I looked up the Statistical Abstract of the United Kingdom, and I found that in 1913 the Bank of England conducted its business with a gold reserve of £35,000,000. There was no other gold reserve in this country centrally available, except such gold as might have been held by the joint stock banks, which, in case of emergency, they might have been willing to place with the Bank of England.
§ Mr. Williams
Yes, but that was not available for meeting external shocks, and indeed as long as you had that money in circulation, you might have had every British citizen going to the Bank to cash his cheque and thus make the situation so much the worse. If we had had no gold in circulation at the outbreak of the War, and currency notes had then been in ordinary use, there would have been no suspension of the Gold Standard 2029 at the beginning of August in 1914, because it would not have been necessary. It was the internal withdrawal of gold which was the more serious trouble. At that time the £35,000,000 was regarded as adequate, though I know the late Sir Edward Holden thought it was not quite large enough, but to-day we have £700,000,000 to do unsuccessfully what we did successfully in 1913 with £35,000,000.
§ Mr. Williams
It is stupid to regard export trade and import trade as more important than internal trade. The sole object of these things is to enable people to consume goods, and if they are consumed in this country, it is just as advantageous as the foreigner consuming them. It is an absolute delusion on the part of many hon. Members to imagine that export trade is more important than internal trade. It is not. The vital thing is to put our people to work and to let them have something to eat and drink and something with which to clothe themselves. There is no merit in two ships passing on the sea, one ship taking boots out of the country and the other ship bringing boots into the country. There is no merit in export trade per se. It is only a device to enable you to get certain imports that you cannot produce in your own country. But let us assume that the changed price level and the increased activities require double the gold reserve, say, £70,000,000. The Chancellor of the Exchequer now tells us that he has resources which are 10 times as great as the pre-War resources would need to have been. What is wrong? Why all this great change in our policy? Why did the "Old Lady of Threadneedle Street" handle the job without difficulty in pre-War days, and why do we now want a financial army 10 times the strength of that of 1913?
I really wonder whether we are right. I think we ought to re-examine our position, to see whether we cannot get back to the old principles which the right hon. Member for Bow and Bromley said had "gone West," though incidentally my impression, on looking at the map, is that they went East. I really think we have to challenge in our minds the whole policy which we have been pursuing in these last few years, and that policy is much 2030 more in the direction that the right hon. Gentleman wants to walk than that in which I want to walk. The reaction will be from his path, and, therefore, I ask him to re-examine his mind on this subject, though I agree that it is a little difficult, having had his faith and his convictions for such long years, to ask him now to re-examine his mind. But it is sometimes worth while, and I appeal to the Members of this House, though, as I say, I think it is necessary to give my vote for this Bill to-day, to examine their minds and to decide whether or not the policy of these last five years is right or whether in certain respects it is not fundamentally wrong.
§ 6.58 p.m.
§ Colonel Wedgwood
When I come to write the life of the hon. Member for South Croydon (Mr. H. G. Williams), who has just sat down, I shall insert the whole of the speech which he has just delivered, and then I imagine he will resort to bribery and corruption in order to induce me to cut out nine-tenths of it. At the same time I must say that I am not sure that the Exchange Equalisation Account has not encouraged and increased the "hot money" that is put into and taken out of this country, because now it can be taken out with less loss than before.
I rose to put one question to the Chancellor of the Exchequer or to the Financial Secretary to the Treasury. The Debate has been unnecessarily discursive because we had not sufficient information from the Chancellor of the Exchequer when he opened it. The other day, when he was opening the Debate, he told the Committee that they would publish, for all to see, the assets of the fund as at 31st March of this year, so that they would be three months in arrears and yet be available for the taxpayer to study. I thought that we were going to get a definite White Paper showing what those assets were. He gave us the figure of the amount of gold, the 26,000,000 ounces of gold—he gave it in ounces instead of in sterling—and, pressed by my hon. Friend the Member for Bishop Auckland (Mr. Dalton), he said he would also give the assets. By question and answer across the Table we got the promise that we should have the assets made available. He said that the amount of foreign currency we held was trifling. But that is not the point. What we want 2031 to know is how the fund stood three months ago, what was the amount of gold in the fund, what was the amount of foreign paper in the fund, what was the amount of francs held, how exactly the fund stood, so that we might compare that with the capital value which had been put by the country into the fund. That is the important thing which ought to come out of this Debate. We are not anxious to have the information up to date; three months late will do. But we should have this information, especially if we are to have further demands for more credits for this mysterious fund.
There has been too much mystery about it. Let us have, as the price of giving this further £200,000,000, just that little bit of information, the real assets of the fund at 31st March last. That was promised, it is on record, and we ought to insist on having it either as a White Paper or in answer from the Chancellor of the Exchequer to-night, because the Exchange Account has come up against a bad snag. It is all very well using your fund to iron out these fluctuations—I am sick and tired of hearing the words "ironing out." It is just as though you can see the next fluctuation coming and by smoothing the iron over it, spending your Exchange Fund, you can avoid any fluctuations. The whole difficulty of dealing with this fund is knowing whether a fluctuation is tip and down like the waves of the sea or continually downhill. To try to ease the fluctuation of the franc and continually buy francs in order to prevent the exchange fluctuating, you are entering on the dangerous and even disastrous policy of continually buying up a falling currency. It is just such a misfortune which has been met now. The Government have been using their Exchange Fund to attempt to stabilise the franc at 100 or 110, or whatever it may have been. But it was not a fluctuation; it has been a collapse, and consequently a good deal of the Exchange Fund has been wasted, and more is asked for. We want to know that the more which is asked for is not to be used to throw good money after bad, in order still to convert the fall in the franc into a fluctuation.
The right hon. and gallant Gentleman knows that all the francs 2032 which the Exchange Fund buys are redeemed in gold. The gold is earmarked at the Bank of France and brought here within 48 hours. There is no wasting asset there.
§ Colonel Wedgwood
There is no backing behind the French gold now. Now that the backing has gone the use of the Account has proved, I am afraid, rather a serious loss to the taxpayer in this country. Therefore, it is because one is always a little anxious as to what they are doing with this fund, that we want to know what, on 31st March last, they actually held. The Chancellor of the Exchequer has told us what weight of gold they held, and how much gold has been transferred to the Issue Department of the Bank of England. I know that that is written in their books at 85s. to the ounce. I suppose that it has not been bought by us at 85s. to the ounce, but probably far more. But what we have in the fund is £160,000,000 worth of gold. That is not all. We must have got other assets besides. The right hon. Gentleman may have a trifling amount of foreign currency or even foreign exchange, but there must be something which fills the gap between £350,000,000 and the actual value at £7 an ounce of the 25,000,000 ounces of gold in the Exchange Fund. You see, we are getting naturally a little more suspicious. In the first years when this fund was operating, all the gold we had was appreciating all the time, and we were not buying gold; we were buying sterling. Now that a change has come about the country is anxious to know that the Government are not making a heavy loss, and exactly what use the Chancellor of the Exchequer or the Bank of England—we are not yet quite clear as to which is which—is making of these enormous funds which we are putting at their disposal. The Chancellor promised my hon. Friend the Member for Bishop Auckland that he would let us have the full value of the assets as at 31st March last, and I hope that he will give us that, either now or in the shape of a White Paper at an early date.
§ 7.8 p.m.
§ Sir J. Simon
The Debate has wandered over a wide field and a great many hon. Members have taken part, some of them speaking an expert language, some of them confessing to a less degree of special knowledge and some of them stating quite 2033 frankly that these matters were very difficult to understand. My right hon. Friend the Member for Bow and Bromley (Mr. Lansbury), with his usual candour, was one of those who did not claim to be an expert and, therefore, did not seek to speak as such. He put a fundamental question, though a simple one to state: Why should there be any selling or buying of currency at all? He would prefer a world in which that did not happen. He explained further his purpose when he said that his idea would be that one set of goods should be exchanged for another set of goods. That, in its simple form, was once the method by which the world did its business. It was commonly called the method of barter, and there may be parts of the world where it still suffices. But I am afraid the truth is that the complexity of modern society would not make these methods very convenient. There have been in the past, and there are in the present, a great many people who think that one of the arguments for gold is that it provides a convenient measure, though I am not at all sure that everybody on that account would wish to return to a gold standard. I am able to offer my right hon. Friend this consolation, that the object of these exchange equalisation accounts is, at any rate, to make the exchanges steady, and if you make them as steady as you can, and in proportion as you do make them steady, then this selling and buying of exchange which he reprobates is to that considerable extent discouraged and discountenanced.
But while I say that the object of the Equalisation Accounts is to make the exchanges more steady, I find that I do agree with what was said by the hon. Member for Bishop Auckland (Mr. Dalton) when he said, "After all, all these things could do was to aim at restraining undue oscillations." I repeat what I said the other day that for my part I recognise that deep-seated, fundamental economic trends and movements cannot be held up by ingenious arrangements any more than Mrs. Partington was able to keep the Atlantic out by flourishing her mop. The hon. Member for Bishop Auckland said of the proposal, "I suspect it was the United States that suggested it." I cannot deal with his suspicions, but I am in a position to tell him that that is not so at all. We reached this conclusion on considering the 2034 situation of our own fund and on our own view of the existing international situation. Some events that have happened since show that we have not been altogether unwise. What I did do—I hope that it is a course which we can follow regularly in matters of this sort—was to inform the head of the United States Treasury of my intention to ask Parliament to give this further authority. The assurance I received was that our action had the warm concurrence of the United States, it was recognised that it was a contribution to promoting the confidence we were trying together to increase and it was recognised to be along the line we are both of us endeavouring to pursue.
I do not think that the United States Treasury works under the same precise Parliamentary restrictions that our own fund works under. I do not think that they have to get new authority before they are able to exercise further borrowing powers and I am rather confirmed in that by an observation which I saw reported in the papers—it was not official, but it was in several papers—that on the other side of the Atlantic it was stated from the American Treasury that their own resources for the same purpose are abundant. I think, therefore, that we may take it that in this matter—and it will be a satisfaction to everybody—we are working for the purpose of promoting confidence and supporting trade hand in hand with the United States.
The hon. Gentleman made another observation about which I would like to say a word. He said that for the Exchange Equalisation Account to be useful, it must not contain only one thing. It must be a mixed bag. I certainly agree to this extent: our own Equalisation Account certainly needs to have gold and needs to have sterling. That is quite clear. We want sterling when gold is coming in; we want sterling to buy it, and hence this Bill, which is nothing more than providing the Account with the power to make use of more sterling. On the other hand, when gold is going out and it is necessary to assist in that operation for the purpose of keeping the levels steady, we want gold to send out. Therefore it is true that the Equalisation Account cannot be worked by holding one single item, although I do not know that I agree that a mixed bag would be a very good thing.
§ Mr. Dalton
Would it not be convenient in working these operations to hold a certain quantity of foreign currency?
§ Sir J. Simon
I do not deny the theoretical point. I only meant that the two essential things were those which I mentioned. My right hon. and gallant Friend the Member for Ripon (Major Hills) was right when he said that it did not follow that because a foreign currency was being sold for the purpose of substituting for it our own currency, it was that foreign currency which went into the Account. When anybody asks for sterling in place of, let us say, francs, it is always open to the Exchange Equalisation Account to provide sterling, but it does not follow that the result of the operation will he that it actually holds francs. It may very easily get gold as its asset in exchange. I added that because it is an interesting point. I hesitate to speak here with authority on these most difficult matters because a slip in a phrase might do so much damage. I hope, however, that the House will think that I have dealt fairly with the point the hon. Gentleman made. My hon. Friend the Member for Rusholme (Mr. Radford) disappointed me rather because he said he listened to the whole of the Debate the other day and at the end he still felt in a difficulty. All of us did our best to explain these maters and I venture to think my hon. Friend perhaps overlooked in my statement the other day that I said—
§ Mr. Radford
I attributed the blame to my own lack of understanding and not to the explanation of the right hon. Gentleman.
§ Sir J. Simon
We are all working at a very difficult subject and I would be the last to claim that I have said the last word on it. My hon. Friend omitted to observe my statement that the amount of foreign exchange held at the date I mentioned, namely, 31st March, was trivial. It is, of course, true that there is a large gap between the figures of gold holding and the total of the Account. It may be that I did not sufficiently explain it. The one important point to remember is that gold which has been passed from the Account to the Issue Department of the Bank, is valued at 84s. 11½d., and the excess of the market value over that figure is, in substance, an asset of the Exchange Equalisation Account.
§ Colonel Wedgwood
Is not the difference, not that between 85s. and the 140s., but the difference between what is actually paid for gold—120s., or whatever it is—and 140s.?
§ Sir J. Simon
If I have followed the right hon. and gallant Gentleman I suppose that will be so. I make that observation because I think that if my hon. Friend will look at the Debate the other day he will find it does a little clear up the difficulty. I do not know that I can undertake to go over the whole of the Debate to-day and I do not think that in the circumstances the House will expect me to make an extended reply. We have done everything in the most friendly terms but I hope that the hon. Gentleman opposite will allow me to say a word about his reference to the Governor of the Bank of England. I cannot follow him in his views about what are the proper relations between the central bank and the Government. They are important questions with a political theory and practice behind them, but they are not strictly connected with the present Debate. In fact, I think they are irrelevant. I must, however, be allowed to register my protest against what I cannot but think is an unfair form of reflection on the present Governor of the Bank of England. The person who is responsible for the use and management of this fund is myself, together with the Government, and I do not complain however severe the criticism may be. I will receive the attacks and I will do my best to answer them. The Governor of the Bank of England, a most distinguished person, is not in a position to reply, and I would sooner that such reflections were addressed to the Government which must take full responsibility and not to somebody who is not in a position to reply.
I have referred to a number of points which were mentioned. I do not want to embroider the statement I made the other day about publicity. It was made very deliberately and was accepted, at any rate in principle, by, I think, most of those who have spoken in the House, certainly by members of the Public Accounts Committee. I will, however, particularly in view of the speech of the hon. Member for North Lambeth (Mr. G. Strauss) look again at what I said the other day, and if there is, as he thinks, a certain ambiguity in what I said I will do my best to clear it up. I think, 2037 however, that the object is well understood by the House. There should not be unnecessary mystery about these things. On the other hand, it is difficult for any one of us, however expert we are, to understand all the dangers of a demand that may appear quite reasonable. I have taken the best possible advice I can to arrive at the happy mean, and I think we ought to see how this works out—I described it as an experiment—before we come to any conclusion.
§ Colonel Wedgwood
Does that mean that we are not to have the full assets but only the amount of gold in the Equalisation Fund? Can we not have the real assets of that fund and the amount of gold in the issue department of the Bank of England?
§ Sir J. Simon
I do not want to make a further statement about it now. I understand the point which the hon. Member made and I will remember what I was asked by the hon. Member for Bishop Auckland. Perhaps the House will trust me about this, and I will take it up and seek the advice of my advisers as to what is right and proper. The Public Accounts Committee will certainly be active on the point, and I do not doubt that we shall work out a system which will be satisfactory. I do not wish to repeat the long speech I made on the Resolution, for I cannot hope to explain the matter more elaborately than I did then. I recognise that all that we are carrying out to-day is what has been described as the immediate policy as distinct from solving all the long-term difficulties. When one considers the situation which is facing a friendly country across the water at the moment, I do not know that it is a very good time for solving all the long-term problems. We must, therefore, in this matter be content to take this immediate step. I ask the House, therefore, to give a Second Reading to the Bill recognising that it is subject to this limitation.
§ Sir J. Simon
I am afraid that I cannot answer that now. I have taken note of what my hon. Friend said and I will gladly consider it. There was one observation made by the hon. Member for Bishop Auckland in opening the Debate 2038 which was very intriguing. He asserted that the position in which the French Government found themselves was very similar to the situation in which the Government of this country found themselves at the end of the last Socialist administration in 1931. Wishing nothing but good to France, I can only say I hope that it is not so bad as that. Nobody can read in the evening papers the speech made by M. Bonnet without seeing why it was that the hon. Gentleman was striving to make that comparison. Perhaps in both cases it will not be thought impertinent if I were to say that our own experience has gone to show that if these difficulties thus created have to be surmounted if expenditure has outrun revenue and if there is borrowing without proper provision for repayment, the only remedy is not in ingenious provision for the moment, but a rectification of the budgetary position and thereby the regaining of the confidence of the world.
§ Question, "That the Bill be now read a Second time," put, and agreed to.
§ Bill read a Second time.
§ Bill committed to a Committee of the Whole House for To-morrow.—[Captain Dugdale.]